Tech Stocks to Buy Now, Market Outlook: Dan Ives of Wedbush

• The summer stock market rally is fading as investors focus on the Federal Reserve.
• But Dan Ives, an analyst at Wedbush Securities, is “firmly” bullish on tech stocks.
• Here are four of Ives’ favorite names to own for the rest of the year.

Stocks are at a “fork in the road” as a two-month-long market rally loses steam, said Dan Ives, a technology and software analyst at Wedbush Securities, in an interview with Insider on Monday.

Several of Wall Street’s top firms, including Goldman Sachs and Bank of America, are convinced that the S&P 500’s 17.4% rise from June 16 to August 16 was nothing more than a bear market rally that will soon unwind. The major US stock index is down 3.6% since last Tuesday.

Ives, a long-time bull, acknowledged in an August 21 note that there are reasons for concern — and none larger than the risk that a hawkish Federal Reserve may continue to aggressively raise interest rates to slow persistently high inflation, even though the economy is slowing.

But despite those risks, Ives wrote that he remains “firmly” bullish on tech stocks in the second half of the year and a believer in trends like artificial intelligence and cybersecurity that he sees as driving long-term growth. His bet is that, in a few years, tech’s struggles in 2022 will be just a blip.

Better-than-expected Q2 earnings from tech companies and remarkably resilient enterprise spending give Ives confidence that this summer market rally can continue into the fall.

“Tech stocks overcorrected on the downside going into earnings,” Ives told Insider. “The Street was expecting Armageddon, and it was much better than feared.”

What’s next for stocks? Ask the Fed

With Q2 in the rearview mirror, investors are now locked in on any clue that indicates whether the Federal Reserve will raise interest rates by 50 basis points (0.5 percentage points) or 75 basis points at its September meeting. Current market pricing indicates that it’s about a coin flip.

Every word from the Fed’s economic symposium in Jackson Hole, Wyoming, will be picked apart by markets. A larger rate hike could succeed in helping to slow inflation, but some pundits have warned that it could also raise the probability of a recession.

While Ives expects the US central bank to keep raising rates, he isn’t convinced that there will be a recession. And if he’s right that the Fed can engineer a so-called “soft landing” by bringing down inflation without causing a recession, then it could be off to the races for tech names.

“The Fed’s going to continue to hike,” Ives said. “But if a soft landing ultimately happens — and the chances of that are looking more and more likely — then I think tech stocks could rally significantly.”

Ives added: “It feels like as we’re getting into the latter part of 2022 going into 2023, there’s some signs of potential dovishness. I think if you combine that with fundamentals in parts of tech that are holding up well — software, cybersecurity, some of the core tech stalwarts: Amazon, Apple, and others — those could lead the market higher.”

4 top tech stocks to own

While many of the stocks Ives covers had impressive earnings reports in the past month — including ride-sharing giants Uber (UBER) and Lyft (LYFT) — the analyst highlighted just four names in his latest note: Microsoft (MSFT), Apple (AAPL), Palo Alto Networks (PANW), and Salesforce (CRM). The former two tech giants had results that especially impressed Ives.

“Microsoft and Apple were just jaw-dropping relative to the headwinds,” Ives said. “And I think a big reason markets had the rallies was those two names.”

Although Microsoft’s revenue and earnings came in light last quarter, Ives believes the stock could rise another 15% thanks to the upbeat guidance on cloud demand that the firm issued. Meanwhile, the analyst boosted his price target for Apple from $200 to $220 (31% upside) last week in anticipation that the iPhone 14 will sell well, even as the economy slows.

As Ives anticipated, Palo Alto Networks impressed investors when it reported earnings after the closing bell on Monday. The company reported revenue of $1.6 billion for the quarter that ended on July 31, which was up 27% year-over-year and above the expected mark of $1.54 billion. Its earnings per share of $2.39 also beat the estimate of $2.28.

Shares jumped over 10% after earnings from $508 to $561, but Ives sees upside to $620 as the cybersecurity company enjoys a multi-year boom in enterprise spending.

“This is another major positive data point for the cybersecurity sector, which is in the midst of a massive growth cycle into the next few years, given the elevated level of threats and enterprise-driven shift to the cloud,” Ives wrote in a Tuesday morning note.

Salesforce will also look to beat estimates when it reports earnings on Wednesday. Ives, who sees 27% upside for the stock, expects the company to meet — if not exceed — revenue estimates, and he wrote that the Street is overlooking cloud strength heading into 2023. However, he added that he’ll be listening closely for signs of enterprise spending weakness.