Wedbush Securities tech analyst Dan Ives has long maintained that today's tech revolution is unlike anything seen since the 1990s despite the industry facing a slump in 2022.
However, the worst year for US stocks since 2008 didn't change Ives' optimistic outlook on the tech industry. "The bull market was under the covers; it just took time to come out after the macro and Fed fears cleared," Ives stated in a recent interview. "We had a high level of confidence — even in 2022 — that we would be getting to this side of the mountain with the bulls leading in 2024."
His forecast came to fruition in 2023 as investors piled into large-cap tech companies with exposure to AI, especially Nvidia and Microsoft. Late last year, Ives wrote that he expected another 20% gain for AI and cloud computing stocks, believing the "AI revolution is the strongest tech trend" in four decades.
"We believe 2Q earnings will be a major positive catalyst for the tech sector and expect tech stocks to be up another 15% for the year, adding to the robust tech gains in 1H 2024 as now the broader tech growth story takes centre stage led by software, cyber security, digital advertising, and semis," Ives wrote in a July 14 note.
Tech Stocks Will Continue To Lead Rally
Despite high valuations and sentiments that the tech sector will finally take a breather after a record 2024 rally, Ives doesn't see a market rotation away from the group. "Emphatically, we believe tech will continue to lead this rally," he said, adding that anyone who thinks differently "will be proven wrong because the growth is so outsized in the tech sector."
Ives predicts that despite stretched valuations, stocks will grow into them as earnings continue to beat Wall Street estimates on strong demand. "Tech stocks will go higher for the rest of the year not because of multiples, but as growth and earnings accelerate with the AI revolution driving this transformational growth wave vs. Street expectations," Ives noted.
He explained that Wedbush's research in the past month has given them "a high level of confidence that the AI revolution monetisation has now begun to hit its next gear of growth as the baton has been handed from semis to the software phase with use cases exploding across the board."
Ives' team is also tracking the top tech stocks and recently increased the stock target prices of three tech companies by over 20%.
Microsoft (Nasdaq: MSFT)
According to Microsoft CEO Satya Nadella, Microsoft Copilot and the Copilot stack are "orchestrating a new era of AI transformation" to drive better "business outcomes." The company posted double-digit revenue and net income growth for the March-ended quarter as revenues from Microsoft Cloud jumped 23% year over year (YoY) to $35.1 billion.
With a market capitalisation of over $3.3 trillion, Microsoft's integration of AI in business processes and new products is helping it increase revenue across segments like Intelligence Cloud and personal computing. The AI leader returned $8.4 billion to shareholders during the quarter through share repurchases and dividends.
Wedbush analysts had a price target of $550 for the stock, implying an almost 25% upside from its latest close of $440.37.
Palantir (NYSE: PLTR)
In a recent interview with BNN Bloomberg, Ives said Palantir Technologies is the "purest AI name in the market in terms of use cases." Palantir offers enterprise AI software systems for machine-assisted data analysis and builds data fusion platforms like the Palantir Artificial Intelligence Platform (AIP) and the Palantir Foundry to push the boundaries of big data analytics.
The firm's machine learning capabilities enabled it to consistently deliver for the US Department of Defense (DoD). In Q1, it extended and bagged new defence contracts. For instance, the US Army extended the ongoing Maven Smart System contract with Palantir for five more years. Palantir also secured a DoD Chief Digital and AI Office contract to make licenses of AI-powered operating systems across the department.
Meanwhile, the company expanded its partnership with Voyager Space to supply software data management products for the upcoming Starlab commercial space station. Palantir's Q1 revenue increased 21% YoY to $634 million; almost $257 million came from US government contracts.
Ives' target price for the stock was $35 apiece, implying an over 22% upside from its latest close of $28.64 on July 18.
Zscaler (Nasdaq: ZS)
Cloud security specialist Zscaler continues to witness high demand for its Zero Trust Exchange platform. For the quarter ending April, the company recorded 32% YoY revenue growth to $553.2 million.
The company has been on an acquisition spree, recently taking over Avalor Technology to enhance AI innovations by combining its datasets with Avalor's Data Fabric for Security for improved vulnerability tracing. Zscaler also acquired Airgap Network to enhance Zero Trust Segmentation for IoT devices.
Elsewhere, the firm introduced an AI assistant called ZDX Copilot to its Zscaler Digital Experience service. The AI assistant harnesses knowledge from trillions of data points to provide insights to IT operations and security teams. For Q2, company management expects revenues of up to $567 million.
Wedbush analysts had a target price of $260 per share, implying an upside potential of over 30% from its latest close of 190.37.
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