Cutting labor costs will help firms boost profitability, even in a weaker economy.Long-time bull Dan Ives of Wedbush Securities admits that his optimism about technology stocks was off-base last year, but he's still not ready to change his tune.
The tech-focused Nasdaq Composite index fell over 33% in 2022 as historically high earnings multiples contracted under higher interest rates brought about by rampant inflation.. Many analysts are skeptical that tech firms can continue to increase revenue and earnings while the economy loses momentum.
Tech companies can not only survive this slowdown, but become more profitable by getting leaner, Ives wrote. Meta Platforms is an example of a stock that investors rewarded for its plan to cut costs through layoffs and more careful spending, Ives noted. And while firms across stock market sectors will likely trim expenses as well, Ives wrote that his conversations with chief investment officers leads him to believe that companies will continue to make cybersecurity and cloud infrastructure priorities in their budgets.
Lower costs and resilient revenue will help tech companies top a relatively low bar for estimates, Ives wrote. He noted that earnings multiples for the sector are already below their five-year average and added that tech names haven't been this under-owned since 2009."We double down on our call that we believe tech stocks will be up 20% this year and are way oversold at current levels," Ives wrote.
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