Stocks in the technology sector have seen unprecedented drawdowns this year with FAANG stocks including Meta Platforms (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOGL) tanking 44.3%, 18.3%, 28.6%, 67.7%, and 21.5%, respectively. This decrease in stock prices has been exacerbated by investors’ pessimism about growth in earnings due to the uncertain macro environment.
This uncertainty has been compounded due to multiple headwinds of supply chain logjams, a tight labor market, rising interest rates, and soaring inflation.
But how has the technology sector fared so far in such a volatile macro-environment? Wedbush analyst Daniel Ives remains optimistic and sees “no major cracks in the armor yet” for the tech sector. He recently pointed out in his research report that the technology sector is “holding up much better than expected with earnings reports from bellwethers Nvidia, Palo Alto, Zscaler showing demand on pockets of tech are still strong.”
Is analyst Ives’ optimism warranted? We looked at three of the analyst’s favorite picks across the tech sector and looked at what other Wall Street analysts, besides Ives, are saying about these stocks. Let’s take a look.
Apple (NASDAQ: AAPL)
Apple had warned at its fiscal Q2 earnings call in April this year that COVID-19 disruptions, specifically in China, chip shortages, and Russia’s war on Ukraine could result in worsening supply chain challenges for the tech giant.
Apple expects these challenges to hurt its June quarter revenue by between $4 billion and $8 billion.
However, according to a CNBC report from last week, citing Nikkei, Chairman of Foxconn, Liu Young-way stated that Foxconn “has seen a more limited impact from the lockdowns than it anticipated, and it raised its outlook for the current quarter and the full year as a result.” Foxconn is a key Apple supplier.
According to another Nikkei Asia report, AAPL is also considering moving some of its iPad production to Vietnam and out of China.
Interestingly, the easing of supply chains was also echoed by analyst Ives who stated that his channel checks had indicated that there was a “clear improvement in the supply chain in Asia for names like Apple and other chip players which is a much-needed positive heading into 2H.”
Ives added that while gradually, China eases up on lockdowns, he continues to see “a strong production trajectory heading into June for stalwart names such as Apple (good for iPhone 14 ramp) and Tesla which are key barometers for the overall market on this painful hot button supply chain issue.”
Apple is one of Ives’ favorite technology names and he is bullish on the stock with a Buy rating and a price target of $200, which is nearer to the Street high price target of $210. The analyst’s price target implies an upside potential of 34.5% on the stock.
Other Wall Street analysts also seem to favor Apple with a Strong Buy consensus rating based on 21 Buys and six Holds. The average AAPL price target of $186.61 implies 25.5% upside potential.
Salesforce (NYSE: CRM)
This week, Salesforce announced Q1 FY23 earnings which came in ahead of Street expectations, demonstrating the company’s resilience.
Analyst Ives was encouraged by CRM’s results and stated that tech investors will be relieved by the company’s results as it indicated “that core enterprise demand is holding up well despite the macro and geopolitical swirls.”
The analyst considered CRM’s strong Q1 earnings to be a “key shot in the arm for the tech bulls when combined with stalwarts Nvidia, Zscaler, and Palo Alto speak to cloud and cyber security pockets of demand that look relatively healthy despite fears of much darker macro.”
Ives remained bullish on the stock with a Buy rating and a price target of $225, implying an upside potential of 27.8% on the stock.
The rest of the analysts on the Street are also upbeat about the stock with a Strong Buy consensus rating based on 28 Buys and three Holds. The average CRM price target of $241.90 implies 37.4% upside potential.
Palo Alto Networks (NASDAQ: PANW)
Cybersecurity is one of analyst Ives’ favorite sub-sector in the technology sector and Palo Alto Networks is one of the analyst’s top picks in this sector. This cybersecurity company delivered impressive Q3 results where its billings revenue surged 40% year-over-year to $1.8 billion, making it, in Ives’ words, “the star of the show.”
From the analyst’s perspective, the enterprise shift to the cloud and the “multi-year tidal wave of cyber security enterprise spending” could be a “major positive data point for the cyber security sector.”
This growth cycle could benefit PANW and as a result, Ives is optimistic about the stock with a Buy rating but lowered the price target to $580 from $660, implying an upside potential of 15.6%.
The rest of the analysts also side with Ives with a Strong Buy consensus rating based on 24 Buys and one Hold. The average PANW price target of $639.58 implies 27.5% upside potential.
Bottom Line
From analyst Ives’ list, it is evident that the technology sector, especially the tech bellwethers like Apple have proved to be more resilient in the current volatile macro environment. Overall, the tech sector seems to be well-positioned to navigate this environment.
However, Ives has cautioned that this is a “bifurcated tech tape” which will be “driven higher by software, semis, cyber security, and product-driven names (Apple) as part of this digital transformation.”
In contrast, the analyst expects that the “WFH poster children in the e-commerce world will continue to see multiples compress as results soften off pandemic highs as seen by the recent Snap debacle.”
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