- Wedbush's Dan Ives remains bullish on tech stocks despite a rotation away from the highly valued sector.
- Ives says based on industry checks he believes the first quarter earnings season will be "robust."
- The analyst highlighted Microsoft, Apple, and Zscaler as his top tech stock picks.
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A recent rotation into value stocks and away from high-flying tech names has created a buying opportunity for investors ahead of what is set to be a strong first-quarter earnings season, Wedbush says.
In a note to clients on Wednesday, analyst Dan Ives said based on industry checks he believes tech stocks' first-quarter earnings will have robust fundamentals and solid deal activity across the board.
"This is just a painful, brutal valuation digestion period for tech stocks in their early stages of growth and a short-term sell-off in the midst of a multi-year bull rally we expect to go well into 2022," Ives wrote.
Wedbush believes that there will be a record $2 trillion spend on digital transformation from enterprises and consumers over the next decade, buoyed by President Biden's $2.3 trillion infrastructure plan.
"$2 trillion of digital transformation spending on the horizon among enterprises and consumers is unmatched and growth prospects are unlike anything we have seen covering tech stocks on the Street the past few decades," the Wedbush analyst wrote.
Ives highlighted the incredible growth in cloud applications and storage, AI, 5G, and cybersecurity in his note to clients on Wednesday.
The analyst said his team estimates 35% of workloads are on the cloud today, but that figure will double by 2023 in an "eye-popping trajectory."
"The fundamental growth on the horizon for these next-generation technologies is unprecedented as this 4th Industrial Revolution begins to takes hold," the analyst wrote.
Ives did note that tech valuations remain historically elevated, but argued that this is a result of record growth prospects.
Check out this data from NYU on price-to-earnings ratios by sector for more context.
"It's not garage sale prices yet for tech stocks, we believe relative to the outsized growth prospects ahead, this is a pound the table moment to own the secular winners in FAANG, cloud, cybersecurity, e-commerce, and 5G with 1Q earnings a key positive catalyst ahead," Ives wrote.
The Wedbush analyst also gave his three favorite tech stocks in his note to clients: Microsoft, Apple, and Zscaler.
Nuance Communications had previously been on the list in Zscaler's spot, but the company was acquired for $19.7 billion by Microsoft at a $56 per-share valuation.
Ives concluded by saying that a 10 basis-point move on the 10 year Treasury yield and a brief rotation away from tech shouldn't scare tech investors who are betting on long-term trends in the market.