- Daniel Ives of Wedbush wrote in a Monday note that cloud stocks such as Amazon and Microsoft are poised to benefit from the coronavirus pandemic.
- “During the darkest period of a shock event with doomsday worries front and center, fundamentals and valuations get thrown out the window as pure fear and panic take over with red screens the result,” Ives wrote.
- However, this creates solid buying opportunities for tech investors “with the risk tolerance and patience to own the tech names with attractive risk/rewards, strong secular themes, and stress tested models,” he said.
- Here are three reasons Ives likes cloud stocks.
- Read more on Business Insider.
There are still bright spots in the market even amid the coronavirus-induced rout, according to one Wall Street firm.
“We believe having a playbook of tech themes and stocks that can navigate this dark storm remain the best way to invest in this landscape,” Daniel Ives of Wedbush wrote in a Monday note. In particular, Ives sees opportunities in cloud themes in the “dark storm,” he said.
Ives has long argued that tech stocks will stand the test of time and be able to recover amid the coronavirus pandemic. In a note Monday, he broke down reasons why cloud computing is poised to surge as the coronavirus increases the number of people working and learning from home while social-distancing measures prevail to curb the spread of COVID-19.
“As we have seen in 20 years of covering tech stocks through many shock events, during the darkest period of a shock event with doomsday worries front and center, fundamentals and valuations get thrown out the window as pure fear and panic take over with red screens the result,” Ives wrote.
However, this creates solid buying opportunities for tech investors “with the risk tolerance and patience to own the tech names with attractive risk/rewards, strong secular themes, and stress tested models for the other side of this dark valley,” he said.
1. Software is an “offensive and defensive sector”
Luis Alvarez/Getty Images
“A trend we are already seeing in the field is that those vendors heavily depending on renewal business for annual contract value growth are seeing far less disruption thus far than these vendors that are hunting after new business,” Ives wrote Monday. He’s said that tech stocks are a solid bet amid coronavirus before, advocating for Apple and other software stocks that he sees as a “golden buying opportunity” while the market is down.
2. The move to cloud will “accelerate more quickly” amid the coronavirus pandemic
The coronavirus pandemic is a “key turning point” around deploying cloud-driven and remote-learning environments, Ives said.
As a majority of Americans are working or learning from home amid federal social distancing measures, Ives’ projections of moving 55% of workloads to the cloud by 2022 from 33% “now look conservative as these targets could be reached a full year ahead of expectations given this pace,” he said. He also expects that $1 trillion will be spent in cloud over the next decade, benefiting companies such as Microsoft and Amazon.
3. Microsoft remains the “Rock of Gibraltar” stock to own
Microsoft at current levels is “a golden cloud tech name to own for those willing to navigate the volatility and is poised to see an acceleration of cloud deployments moving ahead,” Ives wrote.
The vast majority of the company’s more than $1 trillion mega-valuation and its revenue is based on its flagship Azure, Office 365, and core enterprise-driven franchise, according to Ives.