It's not the 'Twilight Zone,' Silicon Valley Bank turned Big Tech into the 'new safety trade'

9:35 pm ET March 19, 2023 (MarketWatch) Print

By Wallace Witkowski

Microsoft an immediate winner with shares up 12.4% on the week

The demise of Silicon Valley Bank may pose an existential crisis for many startups this year, but for Big Tech, it's a boon as investors rush to established names, one analyst maintained Friday.

While it may be confusing to bearish investors, Wedbush analyst Dan Ives said the dynamics of the past week -- the collapse of SVB Financial Corp. (SIVB) and Silicon Valley Bank, and Signature Bank, the uncertainty in the regional banking sector, and a fairly good earnings season for tech names -- has set up a "compelling risk/reward heading into the rest of the year for high quality tech names."

"While it sounds like Twilight Zone comment to many investors; tech stocks have become the new safety trade with Big Tech names a major beneficiary of this dynamic," said Wedbush analyst Dan Ives in a Friday note.

One stock supporting Ives was Microsoft Corp. (MSFT), which on Friday turned out its best week in nearly eight years during the banking turmoil and growing popularity of OpenAI's ChatGPT artificial-intelligence app, which Microsoft is using in its Bing search engine and Office 365 products.

Read: Microsoft stock rallies for best week in nearly 8 years

"Large cap tech and sub-sectors such as cloud and cyber security are seeing much more resilient growth than the Street had anticipated," Ives said. "While budgets are under pressure across the board, enterprises have green lighted projects and deployments in 2023 with many budgets now in place. Numbers for 2023 have been derisked by management teams and these tech stocks have been under owned and still remain in that camp in our opinion."

Also, Ives said that with the possibility of another Fed rate hike next week "is now baking in a handcuffed Fed for the rest of the year on its rate hike path that needs to pause and likely cut heading into year-end given the cracks (SVB, Signature, etc.) seen in the financial system over the past few weeks."

Given that, Ives said he still expects tech stocks to rise 20% or more in 2023 "and still have a nice upside this year." The tech-heavy Nasdaq Composite Index is already up 11.1% on the year, compared with a 2% gain on the S&P 500 index .

In cybersecurity, Ives said he prefers names such as Palo Alto Networks Inc. (PANW), Check Point Software Technologies Ltd. (CHKP), CyberArk Software Ltd. (CYBR), Tenable Holdings Ltd. (TENB), Zscaler Inc. (ZS), and CrowdStrike Holdings Inc. (CRWD).

Read: 'High proportion' of startups may fold by year's end following Silicon Valley Bank failure, Morgan Stanley says

In addition to Microsoft, Ives said his top cloud picks for 2023 were Datadog (DDOG), MongoDB (MDB) and Salesforce Inc. (CRM), while Apple Inc. (AAPL) "firmly remains" his top tech pick for 2023 and Tesla Inc. (TSLA) remains his "favorite disruptive tech name."

Established names have a definite edge over late-stage startups right now seeing many need to rethink their funding plans and timelines for going public as evidenced in the announcement from privately held fintech company Stripe of a $6.5 billion funding round to provide liquidity to current and former employees, cutting the company's valuation to $50 billion, nearly half its $95 billion two years ago.

Year-to-date, the ETFMG Prime Cyber Security ETF (HACK) is up 2.4%, the First Trust Cloud Computing ETF (SKYY) is up 9.2%, the iShares Expanded Tech-Software ETF (IGV) is up 11.8%.

-Wallace Witkowski

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March 19, 2023 21:35 ET (01:35 GMT)