Wall Street analysts are offering up their best technology picks for the new year as 2023 comes to a close. This year ushered in a much needed reset for the downtrodden growth industry, which suffered from the Federal Reserve’s debilitating rate-hiking cycle and downbeat market sentiment. Excitement around artificial intelligence and a better-than-feared economy brought some optimism back to Wall Street, helping fuel a rotation back into the growth sector that’s helped boost the tech-heavy Nasdaq Composite more than 42% this year. That’s a sharp rebound compared to how the index fared in 2022, when it shed 33.1%. Looking ahead to 2024, some Wall Street analysts remain bullish on the setup for some of 2023’s major winners and see a pathway to growth for some underappreciated names. Here are Wall Street’s top technology picks for the new year. Semiconductors It’s no surprise that semiconductor stocks across the board experienced a blowout year. Nvidia dominated the show, surging a whopping 243% as investors bet on the potential of its graphics processing chips fueling large language models like ChatGPT. Even after its jaw dropping run, Wall Street sees more gains ahead, with the average price target implying 33% upside, per FactSet. Bank of America analyst Vivek Arya named the stock his top semiconductor pick for new year. Despite the recent stock runup, he noted that shares are trading at a low multiple, suggesting some skepticism toward the “sustainability” of its generative AI investments. “We believe it’s early to predict a peak, as these trends take decades to play out,” he wrote. NVDA YTD mountain Nvidia shares have more than tripled this year Bernstein’s Stacy Rasgon said in a Monday note that “NVDA is still the best way to play AI, with numbers appear set to continue inflecting higher, and valuation that is becoming extremely attractive (the stock is, in fact, now the cheapest AI play if you can believe it).” Nvidia may continue its uptrend in 2024, but Wall Street’s also finding opportunities in some less popular AI chip beneficiaries. Both Bernstein and Bank of America named Broadcom among their best ideas for 2024, with Bernstein’s Rasgon citing the company’s VMware acquisition, attractive valuation and AI potential. “AVGO is benefiting from a robust AI story that bridges a nearer-term core slowdown as well as significant VMware accretion on the way,” he wrote in a note to clients. Along with Broadcom, Bank of America’s Arya also favors NXP Semiconductors and KLA Corp , while Rosenblatt’s Hans Mosesmann named Advanced Micro Devices among his top picks for the first half of 2024. “Nvidia is not going away, but AMD we feel has made the case that they will be an important AI innovator on a secular basis,” he wrote, citing the recent rollout of the MI300X chip and AMD’s competitive positioning in the GPU market. Internet Amazon appears to be getting a lot of love from analysts into 2024, although Wall Street is bracing for a range of winners in the internet sector. AMZN YTD mountain Amazon shares year to date In a recent note to clients, Evercore ISI’s Mark Mahaney named Amazon, Expedia and Meta Platforms among his top picks for the new year. For Meta Platforms, Mahaney cited the company’s new monetization opportunities through Instagram Reels and a “compelling user and advertising value proposition” given its broad global reach through its apps. Meanwhile, Mahaney thinks that Amazon is reaching an inflection point of accelerating revenue growth and expanding operating margins. The company also boasts a strong management team and leading market position in online retail and cloud. JPMorgan’s Doug Anmuth echoed similar sentiment toward Amazon in naming the e-commerce giant the firm’s top large-cap pick. He also highlighted Alphabet , citing improving ad growth and margin gains, as well as a tightening of the so-called “AI gap,” thanks to the company’s Gemini product . PINS YTD mountain Pinterest shares in 2023 Piper Sandler’s Thomas Champion also named Amazon the company’s top large cap pick, citing improving retail margins and heightened AWS spend. On the small-to-mid cap front, he highlighted Pinterest as a top pick after a solid finish to 2023. The stock has gained more than 55% year to date and rallied nearly 11% in December. “PINS likely exited 3Q23 growing revenue at mid-teens+ y/y and Street sequential growth expectations look beatable,” he wrote. “PINS is seeing better infrastructure efficiency with AWS spend down mid-teens y/y on an MAU [monthly active users] basis. Incremental margin improvements have also been strong and Street estimates look conservative.” Software To no avail, many Wall Street analysts continue to place their bets on Microsoft in the new year. Shares of the software giant have surged more than 55% this year as the company capitalizes on AI tailwinds . According to Goldman Sachs analyst Kash Rangan, Microsoft’s performance is a sign of “rightfully deserved credit” for its AI opportunities and there’s still potential upside ahead with new services. MSFT YTD mountain Microsoft’s stock performance in 2023 But while Microsoft may be leading the software pack, Wall Street is finding other buying opportunities. Along with Microsoft, Goldman named Adobe and ServiceNow top picks, citing their resilient growth trajectory, operating margin expansion opportunities and positions in generative AI. Elsewhere, Evercore ISI’s Kirk Materne also favors Salesforce as a top 2024 play as recent macro headwinds dissipate and the margin expansion story continues to play out. He also called Snowflake a top “growth idea” as companies update their data stores with the growth of generative AI. In addition to AI, many view cybersecurity as a major theme for the sector in the new year. Along with Microsoft, Adobe and Intuit, Mizuho named CyberArk a top pick for the new year, viewing it as a prime beneficiary of the changing threat environment. Meanwhile, Evercore ISI highlighted both Palo Alto Networks and CrowdStrike . “The real winners in the AI race will be the companies with scale and proprietary datasets, and we firmly believe that PANW is well-positioned to capitalize on this advantage, thanks to its scale and reach across the entire security stack,” the firm said. Hardware and networking Heading into the new year, many on Wall Street are bracing for an inflection in what’s been a difficult IT spending market, due in part to mainstream AI adoption. “A more stable macro backdrop combined with secular tailwinds from AI infrastructure ramps + adoption should lead to an inflection for the broader hardware/networking industry,” wrote Evercore ISI’s Amit Daryanani. The ramp up in spending to build out data infrastructure to support companies such as Vertiv Holdings , Arista Networks , along with storage and server companies such as Dell and Hewlett Packard Enterprise . He also sees tailwinds for IBM as AI adoption boosts productivity. To be sure, despite upbeat investor sentiment, Wall Street analysts are bracing for some uncertainty in the hardware and networking space in the near term. ” While customer verticals, like Cloud, have a more positive outlook in relation to capex, the linearity of investments will be impacted by the wind-down of excess inventory,” wrote JPMorgan’s Samik Chatterjee. “With a more muted rebound in Hardware demand from pullbacks in business spending as well as consumer spending, we expect the magnitude of the recovery to underwhelm investors, particularly in light of elevated valuations relative to long-term average multiples,” he added. Given this setup, Chatterjee favors companies in the sector connected to AI infrastructure, and those expected to ramp up AI-related revenues in the second half. On the networking equipment front, this includes both Arista Networks and Coherent . He called both companies “underappreciated in relation to their leverage to AI spend in the medium-term.” — CNBC’s Michael Bloom contributed reporting
Sumber: www.cnbc.com
