cemagraphics
UBS says AI, big data and cybersecurity are at an inflection point that should see faster adoption over the next few years.
Demand for what it calls the “ABCs of tech” is underpinned by “powerful secular trends around automation, analytics, and security,” UBS strategists Sundeep Gantori wrote in a note.
“We forecast that the combined revenues of the three segments will grow from USD 386b in 2020 to USD 625bn in 2025, implying an average clip of 10% annually, higher than the mid- to high-single digit we predict for the broader tech sector (NYSEARCA: XLK),” Gantori said.
“We think investors are best rewarded by investing in a diversified group of incumbents and disruptors with exposure to three key segments,” he said. “We reduce the weighting of disruptors to 10% (and increase the weighting of incumbents to 90%) due to near-term valuation uncertainty amid a rising rate backdrop.”
Disruptor stocks on the focus list:
- CrowdStrike (CRWD) – “Strong secular tailwinds from the growing cloud computing market will help to boost its topline growth.”
- Fortinet (FTNT) – “As a leader in the cybersecurity space, we believe it is well positioned to capture secular growth trends.”
- Palo Alto Networks (PANW) – “Longer term, we expect the company to gain share in the highly fragmented cyber security industry due to its platform diversification and targeted acquisitions, as well as its increasing focus on cloud-based security solutions.”
- ServiceNow (NOW) – “ServiceNow is well positioned to capture the growth in demand for digital transformation services, thanks to its strong competitive product ecosystem.”
- Splunk (SPLK) – “The company should continue to see strong revenue and billings growth driven by continued adoption of new users as well as strong renewal rates and upsell activity in the -its installed base.”
- Workday (WDAY) – “We believe it is well-placed to take advantage of cross-sell opportunities in planning, procurement, and analytics software.”
- Zscaler (ZS) – “As a leader in the cybersecurity space, we believe it is well positioned to capture secular growth trends.”
Incumbent stocks on focus list:
- AMD (AMD) – “As a major incumbent in the ABCs of tech, AMD is well positioned to ride the secular growth in data centers, AI, consoles, and accelerators, as it holds leading positions in both GPU and microprocessor segment.”
- Alphabet (GOOG) – USB favors “Alphabet for its best-in-class AI-driven search and advertising.”
- Amadeus IT Group (OTCPK:AMADY) – “We believe that its continuous product and service innovation revolving around the integration of machine learning models will help to enhance its value proposition.”
- Applied Materials (AMAT) – UBS favors “AMAT for its leadership in semiconductor equipment, an industry benefiting from strong chip demand driven by big data and AI.”
- ASML (ASML) – “We think ASML deserves a premium valuation (P/E) as the company is well positioned to benefit from rising silicon content in smart devices and its shift to advanced technology extreme ultraviolet lithography products.”
- Broadcom (AVGO) – “Broadcom is attractively valued (P/E basis) due to its steady earnings growth and strong free cash flow generation.”
- Capgemini (OTCPK:CGEMY) – UBS likes “Capgemini for its competitive AI and analytics services, which allow enterprise customers to implement ready-to-market AI and big data solutions.”
- Check Point Software (CHKP) – UBS favors “Check Point for its consistent Global equity focus list, buyback strategy, relatively attractive free cash flow yield, and renewed efforts to fuel growth through product innovations.”
- Cisco Systems (CSCO) – “We believe that its continued product innovation in the area of cyber security and AI will contribute to long-term growth.”
- Cognizant Technology (CTSH) – A “leading IT service provider with strong capabilities in scaling AI initiatives for enterprise clients.”
- Dell (DELL) – “We believe Dell will remain a dominant player as the demand for big data and AI integration in businesses is likely to increase over the next decade.”
- Gartner (IT) – “Gartner is well positioned to benefit from its powerful access to data, technology spending and consulting services.”
- HP (HPQ) – “HP is well positioned in the burgeoning 3D printing market.”
- Intel (INTC) – “We expect the company to make significant improvements to its manufacturing process and limit component losses to manageable levels.”
- Lam Research (LRCX) – UBS likes “LAM Research for its leadership in the semiconductor space, with memory capex spending as a strong long-term catalyst.”
- Marvell Technology (MRVL) – “We expect the company to outperform its longer-term revenue model due to a strong order book across all end-markets.”
- Micron Technology (MU) – “Micron’s profitability should improve amid stable DRAM pricing and continued cost improvements.”
- Microsoft (MSFT) – “Its valuation is still attractive compared to its large-cap peers on a free-cash-flow basis.”
- MSCI (MSCI) – “MSCI is poised to benefit greatly from strong growth in its big data solutions.”
- Nvidia (NVDA) – UBS likes Nvidia “given its leading position in the GPU market, an important semiconductor used for AI.”
- Oracle (ORCL) – “We believe estimates are likely to be exceeded and look forward to stabilizing revenue growth in the cloud and big data it offers.”
- Taiwan Semiconductor (TSM) – UBS favors “TSMC for its defensive business model and exposure to multiple long-term growth segments such as artificial intelligence and the Internet of Things.”
- Texas Instruments (TXN) – TXN should “benefit from increasing semiconductor content in the auto industry, with AI and big data as additional catalysts.”
- Thomson Reuters (TRI) – TRI expects to “continue to gain market share, supported by its diverse product offerings to knowledge workers.”
- VMware (VMW) – “VMWare will benefit from the growing trend of businesses moving to the cloud.”
SA contributor JR Research advises buying tech hand over fist.
#UBS #sees #tech #ABCs #inflection #point #Source Link #UBS sees its ‘tech ABCs’ at an inflection point