4 Top Tech Stocks to Buy Amid Fears of New Omicron Variant
The new variant of the coronavirus found in South Africa – Omicron - sparked a widespread sell-off on Friday, as investors feared that the latest version of COVID-19 could again prove to be a major roadblock to economic recovery.
This resulted in the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) falling 2.5% and 2.3%, respectively, on Friday.
However, this broad-based sell-off has also led to a buying opportunity, according to Wedbush analyst Daniel Ives. According to Ives, his “bullish tech playbook has been unchanged [over the past 18 months] and any time we get 10-year yield spikes/variant fears/second wave worries we view this as a buying opportunity to own the tech secular winners.”
While the analyst acknowledged that the valuations on many tech stocks appear “stretched," he remained bullish about growth prospects around cyber security, 5G, cloud, and the metaverse, saying that they are, “unparalleled to any period of time we have experienced since covering tech stocks in 2000.”
Let us look at some of the analyst’s favorite picks across the tech sector that are also a favorite of Wall Street.
Microsoft (MSFT)Analyst Ives is optimistic about Microsoft’s cloud business. Indeed, in fiscal Q1, the technology giant’s Intelligent Cloud unit saw its revenues soar 31% year-over-year to $17 billion. This rise in revenues was largely driven by Azure and other cloud services revenues soaring 50% year-over-year.
Daniel Ives pointed out that the work-from-home (WFH) and hybrid environment would be another catalyst for the growth of Azure and Office 365. As a result, the analyst believes that “Azure's cloud momentum is still in its early days of playing out within the company’s massive installed base and the Office 365 transition for both consumer/ enterprise is providing growth tailwinds over the next few years.” (See Top Smart Score Stocks on TipRanks)
By the analyst’s estimate, enterprise workloads on the cloud will rise “from 40% today to 45% by the end of 2021 and 55% by 2022” and it could be a total addressable market (TAM) worth $1 trillion.
Ives is bullish, with a Buy rating and a price target of $375 (13.7% upside) on the stock.
Other analysts are also positive about Microsoft, with a Strong Buy consensus rating based on 22 Buys and 1 Hold. The average Microsoft price target of $369.36 implies 9.5% upside potential to current levels.
Matterport (MTTR)Matterport has a spatial computing platform that “turns buildings into data, making every space more valuable and accessible.” The company’s spatial computing platform and 3D capture technology have resulted in making buildings and physical spaces accessible digitally.
The company primarily generates revenues through subscriptions to its artificial intelligence (AI) powered spatial data platform, licensing its data to third parties, selling its products, including its data capture devices like its Matterport Pro2 camera, and providing services to customers.
In fiscal Q3, MTTR’s total revenues were up 10% year-over-year to $27.7 million. Subscription revenues were $15.7 million, an increase of 36% year-over-year. However, product revenues were up by only 4.3% year-over-year, to $8.7 million, as supply chain constraints dragged down revenues.
The supply chain issues and a tight labor market weighed down the company’s Q4 guidance, too. As a result, MTTR now expects FY21 revenues to range from $107 million to $110 million, down from its earlier outlook of between $120 million and $126 million. (See Insiders’ Hot Stocks on TipRanks)
Analyst Daniel Ives, however, terms the lowered Q4 guidance as “near-term pain for long-term gain as our bullish thesis on MTTR is all about the subscription story going forward and Product revenues move into the background over time.”
Moreover, the analyst believes that Matterport is currently in a transition phase as it moves away from a one-time purchase model to a subscription-based revenues model. This would result in increasing its annual recurring revenue (ARR) “and building pipeline while also increasing margin growth over time.”
What’s more, Ives thinks that Matterport “and its 3D images and technology will result in expanding partnerships on the metaverse (e.g. Facebook) as the company is uniquely positioned to benefit from this massive spending wave on the horizon.”
As a result, the analyst is bullish, with a Buy rating, and has raised the price target from $26 to $30 (9.9% upside) on the stock.
Other analysts also echo Ives’ view, with a Strong Buy consensus rating based on unanimous 4 Buys. The average Matterport price target of $27.25 implies that the stock has a downside potential of 2.9%, implying that the stock could have overshot its valuation.
Palo Alto Networks (PANW)Palo Alto Networks is another favorite of Ives from the cybersecurity sector that is a Buy amid the stock sell-off. The company delivered a blowout fiscal Q1 wherein revenues soared 32% year-over-year to $1.2 billion. What’s more, its Q1 billings witnessed a growth of 28% from the prior year to $1.4 billion, while the remaining performance obligation (RPO) grew 37% to $6 billion in the same period.
The company defines billings as “total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period.”
Nikesh Arora, Chairman and CEO of Palo Alto Networks commented, “Q1 was a strong start to fiscal year 2022, driven by strength in both our product and Next-Generation Security businesses, giving us confidence to raise our revenue and billings guidance for the year. We continue to see strong customer demand and have continued to release key innovations which give us confidence in the durable growth we presented at our September Analyst Day.”
PANW now expects its billings in fiscal Q2 of FY22 to be in the range of $1.51 billion to $1.53 billion, a rise of 24% to 26% year-over-year. Revenues are projected to be between $1.265 billion and $1.285 in Q2.
Analyst Ives commented on this bullish outlook, “The beat on the product front and positive YoY [year-over-year] growth speaks to PANW starting to see an inflection in demand and execution in the field as the pandemic is catalyzing deal flow among customers of all shapes and sizes.”
The analyst pegged the PANW results as “another major positive data point for the cyber security sector which is in the midst of a parabolic growth cycle into 2022 given the elevated level of threats and enterprise driven shift to cloud.”
As a result, Ives rated the stock a Buy and raised the price target from $600 to $630 (16.3% upside) on the stock.
Other analysts also side with Ives, with a Strong Buy consensus rating about Palo Alto Networks based on 24 Buys, 2 Holds, and 1 Sell. The average Palo Alto Networks price target of $605 implies 11.2% upside at current levels.
Apple (AAPL)The Black Friday weekend is a major event for retailers. Usually, that's when sales of electronic goods take off, in advance of the holiday season. Ives estimates that Apple could have very well sold 10 million iPhones during the Black Friday weekend, as demand remains strong for its iPhones. The analyst has projected that Apple could be on track to sell approximately 40 million iPhones between Black Friday weekend and Christmas, “a record holiday pace for the company despite the lingering chip shortage limiting iPhone supply globally by roughly 10 million units based on our analysis.”
The analyst is of the view that the chip issues are “nothing more than a speed bump on a multi-year supercycle iPhone 12/13 that continues to play out” as average selling prices (ASPs) “continuing to be very positive on Pro/Pro Max.”
Ives is also bullish about Apple’s AirPods 3 and expects that the company could “ship close to 100 million AirPod units with a strong holiday performance already underway.” (See Analysts’ Top Stocks on TipRanks)
The analyst estimates that AirPods could very well represent more than 5% of its revenues in FY22.
As a result, Ives is upbeat with a Buy rating and a price target of $185 (17.7% upside) on the stock.
The rest of the analysts on Wall Street, however, are cautiously optimistic about Apple, with a Moderate Buy consensus rating based on 21 Buys, 6 Holds, and 1 Sell. The average Apple price target of $166.92 implies 4.2% upside potential to current levels.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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