Last year was a banner year for technology stocks, but it may just be the tip of the iceberg according to one top analyst.
The idea that we’re at the start of a 3- to 5-year tech-centered bull market is starting to pick up steam on Wall Street. Some analysts have compared the current environment to the early days of the internet, circa 1995.
Speculation on the internet’s potential fueled the dot.com investment frenzy, a bubble that would later burst. The present-day catalyst is artificial intelligence (AI) which many believe will be just as transformative as the internet.
Dan Ives, who covers the technology sector for Wedbush Securities, sees widespread adoption of AI, which currently only accounts for around 1% of all IT budgets. Ives sees that number reaching 8%-10% by the end of 2024. If he is correct, Ives expects over $1 trillion in spending over the next decade.
So what stocks is Dan Ives picking?
Why Does Dan Ives Like Big-Tech Stocks?
The “Magnificent 7” stocks were strong in 2023, and Ives expects that trend to continue in 2024.
As a group, he expects the seven stocks to be up 30% at the end of the year. AI speculation has been a huge lift for Microsoft and Nvidia, and he singled out Microsoft to be a $4 trillion company entering 2025.
He expects Apple to rival that valuation, despite industry skeptics. Apple hasn’t implemented any rousing AI technology yet, and its stock reflects that fact, but Tim Cook did assure shareholders that AI work is going on behind the scenes. Rumors that Apple could integrate AI into the App Store or Siri have circulated, but no details have been released as of yet.
Ives also believes that Apple could buy ESPN this year for $35 to $40 billion, which has raised eyebrows, but that might not be the only big acquisition. The analyst thinks that Google, Amazon, and Microsoft will be very aggressive in buying companies that improve their product offerings or expand their AI capabilities.
Ives has been one of Tesla’s biggest supporters for quite a long time. However, after the company released its earnings in January there were too many issues for the analyst to ignore. Tesla gave no firm production guidelines for its long-awaited new electric vehicles, and has continued to drop prices even after its margins took a beating. That spurred Ives to remove Tesla from Wedbush’s list of “good ideas.”
Why Does Dan Ives Like Palo Alto Networks Stock?
Aside from the Magnificent 7, Dan Ives believes that the cybersecurity industry offers the most growth potential out of any of the technology sub-sectors. One of the main reasons he cited was the widespread adoption of cloud platforms, which presents new challenges for keeping crucial data protected.
Palo Alto Networks (NASDAQ: PANW) aims to be a one-stop shop for its customers, many of whom are in the Fortune 100.
The stock has jumped by 120% over the past year, and for good reason. In the 3rd quarter of 2023, Palo Alto reported $1.88 billion in revenue, which was over 20% higher than the same quarter of last year.
The company’s earnings per share also blew away year-over-year comparisons and outperformed estimates for the quarter by 18.6%.
Palo Alto’s current price-to-sales (P/S) value is 16.5x, lower than competitors Zscaler and CrowdStrike, which have P/S values above 20x.
It makes sense that Dan Ives singled out Palo Alto as a buy because cloud adoption isn’t expected to slow down anytime soon.
What Does Ives Think About MongoDB Stock?
Indeed the secular trend of cloud migration is one of the main reasons Ives has been bullish on MongoDB (NASDAQ: MDB).
The database company’s cloud platform, MongoDB Atlas, reported 36% revenue growth in the 3rd quarter of 2023. Overall revenue was over 7% higher than analysts expected for the quarter.
The company’s product integrates with all the big cloud platforms like Microsoft Azure and Amazon Web Services. The increased revenue helped MongoDB swing from a negative cash flow in the 2nd quarter of 2023 to a positive $35 million free cash flow in the 3rd quarter.
Even though MDB has jumped 113% over the past year, Ives still believes there’s plenty of room to rise. That’s probably due to recent news that the company will supercharge its database queries with AI.
Why Did Dan Ives Recommend CrowdStrike Stock?
The potential to harness generative AI to proactively neutralize cyber threats is another reason why Dan Ives is so bullish on cybersecurity stocks.
Aside from Palo Alto, he also recommends Zscaler, CyberArk, and Tenable Holdings. He rounds out his cybersecurity selections with CrowdStrike (NASDAQ: CRWD).
CrowdStrike has shot to the forefront of the industry over the past decade with its cloud-based module system, which can be purchased separately or bundled, and CrowdStrike has introduced AI over the past few years to make them all the more efficient.
CRWD is up by over 180% in the past year because business is booming. Revenue for the 3rd quarter of 2023 was up 35% from last year. Soaring revenue has made CrowdStrike profitable, and even if CRWD is trading at over 20x sales, the potential is such that it hasn’t stopped investors from buying in.
Which of Dan Ives’s Stock Picks Is Best?
Picking the Magnificent 7 stocks may seem like a no-brainer, but Amazon and Google are still trading somewhat below their highs from just a few years ago. Though Apple hasn’t wowed investors yet, a significant AI launch will draw immense attention. Tesla may struggle, however, as EV sales are expected to stagnate.
Outside of the technology giants, Ives is betting big on cybersecurity companies to soar in 2024. The demand for security in a cloud-based world was highlighted by recent cyberattacks like the one on MGM Resorts in late 2023.
It remains to be seen if the AI boom will mirror the dot.com boom, and subsequent crash, over the next few years. But even if technology stocks don’t match their 2023 gains, they could still handsomely reward their investors in his view.
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