Soaring inflation in the United States, rising commodity prices, and Russia’s war on Ukraine have all led investors concerns about the upcoming Q1 earnings for all sectors. On Tuesday, the U.S. Labour Department’s numbers indicated that the consumer price index (CPI) rose 8.5% for the year ending March, the highest rise since the period ending in December 1981.
Moreover, inflation rose to 1.2% from February to March after an increase of 0.8% in February.
The Fed has already indicated that it plans to tighten its balance sheet by around $95 billion every month, and has already implemented the first interest rate hike. Chairman Jerome Powell has also signaled six more interest rate hikes expected this year and three more hikes next year.
Tightening the balance sheet refers to the Fed selling off its assets in an attempt to control inflation and a hawkish monetary policy stance.
In this scenario, the tech-heavy Nasdaq (NDX) index has seen a widespread sell-off of technology stocks resulting in the index declining 15.5% year-to-date.
However, Wedbush analyst Daniel Ives is not worried. The analyst believes that “fears around a fundamental tech slowdown are way overdone relative to our recent tech checks in the field.” Ives thinks that news of the rate hike is already priced in tech stocks, and it is now time to “aggressively own tech names.”
Using the TipRanks database, we looked at Ives’ picks which the rest of Wall Street is also bullish about. Let us take a look at these three top stocks.
Apple (NASDAQ: AAPL)
Shares of Apple have fared relatively well versus its peers amid this tech sector selloff as the stock has dropped only 7.8% year-to-date. Moreover, many analysts are bullish about the stock and believe it will do well despite lingering supply constraints.
In a bid to address some of these constraints, the iPhone maker recently shifted its manufacturing of the iPhone 13 to India, in a move to diversify the production of the flagship model outside China.
For Citigroup analyst Jim Suva, the geopolitical risks aside, he continues to see “several positive drivers” for Apple. According to the analyst, demand for Apple’s products continues to be strong as people move away from cheaper Android phones toward mid-end and premium-priced products.
Suva brushed aside news of production cuts at AAPL as “nothing unusual at this point in the product cycle given Apple tends to overshoot on build estimates to ensure sufficient supply.” The analyst is of the opinion that AAPL’s current valuation does not reflect new product launches including a virtual or augmented reality (VR or AR) headset device and the Apple Car possibly in 2025.
The analyst has a Buy rating and a price target of $200 on the stock, implying an upside potential of 19.3% at early morning trading levels on Wednesday.
Even analyst Ives views AAPL as “both a Rock of Gibraltar defensive tech name as well as the best 5G tech play in the market with a massive product cycle that is gaining more steam.” Similar to Suva, Ives also has a Buy rating and a price target of $200 on the stock.
Other analysts on the Street are also upbeat about AAPL with a Strong Buy consensus rating based on 23 Buys and five Holds. The average AAPL stock forecast is $193.36, implying an upside potential of 15.1% from early morning trading levels on Wednesday.
Adobe (NASDAQ: ADBE)
Shares of Adobe have been swept up in the tech sector selloff and have tanked 24.4% year-to-date even as the software company delivered upbeat Q1 FY22 results. Adobe posted record total revenues of $4.26 billion, up 17% year-over-year, beating analysts’ expectations of $4.24 billion.
Adjusted earnings came in at $3.37 per share in Q1, surpassing the consensus estimate of $3.34. However, it was the company’s Q2 outlook that disappointed analysts. ADBE has projected net revenues to be $4.34 billion, while analysts were expecting revenues of $4.41 billion. Furthermore, adjusted earnings are projected to be $3.30 per share, compared to the Street’s estimate of $3.35 per share.
Deutsche Bank analyst Brad Zelnick is convinced by the enormous creative total addressable market (TAM) for ADBE “which has been ever expanding beyond expectations, its many levers for durable growth, as well as the even greater opportunity in Digital Experience.”
The analyst is convinced that the Digital Experience (DX) market is “ripe for consolidation – especially in a post-pandemic, cookieless world – with Adobe one of only two logical winners.”
As a result, Zelnick reiterated a Buy rating on the stock but lowered the price target from $660 to $575, implying 34.7% upside potential at early morning trading levels on Wednesday.
The rest of the analysts on the Street echo Zelnick, and are also bullish on the stock with a Strong Buy consensus rating based on 21 Buys and five Holds. The average ADBE stock forecast is $567.64, implying an upside potential of 33.1% from current levels.
Microsoft (NASDAQ: MSFT)
Shares of Microsoft have slumped 15.7% year-to-date as the macroeconomic concerns have weighed on investors’ minds. The question then begs, will macroeconomic headwinds drag down this software giant?
Morgan Stanley analyst Keith Weiss does not think so. His channel checks have indicated MSFT’s “strong positioning across key growth and defensible spending categories.” The analyst pointed out that besides macroeconomic uncertainties, other headwinds for the stock include a slightly higher impact of foreign exchange fluctuations and normalization of growth when it comes to MSFT’s Server Products.
However, Weiss thinks that these headwinds could very well be offset by MSFT’s cloud services (Azure) as the company stands to benefit as more enterprises transform to the cloud. MSFT is the analyst’s preferred name and he has a Buy rating and a price target of $372, implying an upside potential of 31.8% from early morning trading levels on Wednesday.
Other analysts on the Street echo Weiss and are bullish with a Strong Buy consensus rating based on 27 unanimous Buys. The average MSFT stock forecast is $374.88, implying an upside potential of 32.4% from early morning trading levels on Wednesday.
Bottom Line
It is obvious from analyst Ives’ list that other Wall Street analysts also share his view and overall, the large-cap tech stocks seem to be poised to sail through the macroeconomic headwinds.
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