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UBS says AI, big data and cyber security are at a point where they will see rapid adoption over the next few years.
Interest in what he calls the “ABCs of tech” is fueled by “powerful global trends around automation, analytics and security,” the UBS strategist said. Sundeep Gantori wrote on the note.
We forecast combined revenue for the three segments to grow from $386B in 2020 to $625B in 2025, representing an average annual clip of 10%, higher than the mid-to-high single digits we estimate for the broader technology sector.NYSEARCA: XLK)” said Gantori.
“We think investors will be better rewarded by investing in a variety of incumbents and disruptors with exposure to the three key segments,” he said. “We are reducing the weighting of stressors to 10% (and the weighting of incumbents to 90%) in the face of ever-increasing valuation uncertainty.”
List of Distributors in Focus:
- CrowdStrike (CRWD) – “Strong global tailwinds from the cloud computing market will help bolster its top-line growth.”
- Fortinet (FTNT) – “As a leader in the cyber security space, we believe it is well positioned to capture global growth trends.”
- Palo Alto Networks (PANW) – “Over the long term, we expect the company to gain share in the highly fragmented cybersecurity industry due to its unique platform and targeted acquisitions, as well as an increasing focus on cloud-based security solutions.”
- ServiceNow (NOW) – “ServiceNow is well positioned to capture growth in demand for digital transformation services, thanks to a strong competitive product ecosystem.”
- Splunk (SPLK) – “The company should continue to see strong revenue and billings growth, offset by continued adoption by new users as well as strong renewal rates and movement in the installed base.”
- Workday (WDAY) – “We believe it is well positioned to take advantage of sales opportunities with planning, procurement and analytics software.”
- Zscaler (ZS) – “As a leader in the cyber security space, we believe it is well positioned to capture global growth trends.”
Current Stocks in Focus List:
- AMD (AMD) – “As a key player in the technology ABCs, AMD is well positioned to drive global growth in data centers, AI, consoles and accelerators with leadership positions in the GPU and microprocessor segments.”
- Alphabet (GOOG) – USB Favor “Alphabet for best-in-class AI-based search and advertising.”
- Amadeus IT Group (OTCPK: AMADY) – “We believe that the continuous innovation of its products and services revolving around the integration of machine learning models will help increase its value potential.”
- Applied Materials (AMAT) – UBS favors “An industry that stands to benefit from AMAT’s leadership in semiconductor equipment, big data and strong chip demand driven by AI.”
- ASML (ASML) – “We think ASML deserves a premium price (P/E) as the company is well-positioned for increasing silicon content in smart devices and transitioning to advanced technology high-end UV lithography products.”
- Broadcom (AVGO) – “Broadcom is attractively valued (on a P/E basis) given its steady earnings growth and strong free cash flow generation.”
- Capgemini (OTCPK:CGEMY) – UBS likes “Capgemini for competitive AI and analytics services, enabling enterprise clients to implement market-ready AI and big data solutions.”
- Check Point Software (CHKP) – UBS favors “Check Point’s global equity focus list for series share, return strategy, relatively attractive free cash flow yield and renewed efforts to drive growth through product innovations.”
- Cisco Systems (CSCO) – “We believe that continuous product innovation and AI in the field of cybersecurity will help drive long-term growth.”
- Cognizant Technology (CTHS) – “A leading IT services provider with strong capabilities in expanding AI initiatives for enterprise customers”.
- Dell (DLL) – “We believe that Dell will remain a major player in the next decade as demand for big data and AI integration across enterprises is likely to increase.”
- Gartner (IT) – “Gartner is well positioned to benefit from strong data access, technology spending and consulting services.”
- HP (HPQ) – “HP is well positioned in the nascent 3D printing market.”
- Intel (INTC) – “We expect the company to make significant improvements to its manufacturing process and limit stock losses to manageable levels.”
- LAM Research (LRCX) – UBS likes “LAM Research, a leader in the semiconductor space, notes capex as a strong long-term driver of spending.”
- Marvel Technology (MRVL) – “We expect the company to outperform the long-term revenue model given a strong order book across all end markets.”
- Micron Technology (MU) – “Micron’s profitability should improve amid strong DRAM pricing and continued price improvements.”
- Microsoft (MSFT) – “Compared to its large-cap peers on free cash flow, its valuation remains attractive.”
- MSCI (MSCI) – “MSCI is poised to benefit from strong growth in big data solutions.”
- Nvidia (NVDA) – UBS likes Nvidia, “an important semiconductor used for AI, giving it a leading position in the GPU market.”
- Oracle (ORCL) – “We believe estimates will likely stabilize and maintain revenue growth in the cloud and big data offerings.”
- Taiwan Semiconductor (TSM) – UBS supports “TSMC’s defensive business model and exposure to several long-term growth segments such as artificial intelligence and the Internet of Things.”
- Texas Instruments (TXN) – TXN “should benefit from increasing semiconductor content, AI and big data as additional incentives in the automobile industry.”
- Thomson Reuters (TRI) – TRI is expected to “continue to gain market share with differentiated product offerings supporting knowledge workers.”
- VMware (VMW) – “VMWare will benefit from the growing trend of enterprises moving to the cloud.”
SA contributor JR Research is recommending buying technology with a punch.
