UBS says that AI, big data and cybersecurity are at an inflection point that should see faster adoption in the coming years.
Demand for what it calls the “ABCs of technology” is underpinned by “powerful secular trends around automation, analytics and security,” UBS strategist Sundeep Gantori wrote in a note.
“We forecast combined revenue from all three segments to grow from $386 billion in 2020 to $625 billion in 2025, implying an average cut of 10% a year, higher than the mid- to high-single digits we forecast for the tech sector usually (NYSEARCH:XLK),” Gantori said.
“We believe investors would be better rewarded by investing in a diversified group of incumbents and disruptors exposed to all three key segments,” he said. “We are reducing the weight on disruptors to 10% (and increasing the weight on incumbents to 90%) due to near-term valuation uncertainty amid a rising rate environment.”
Disruptive actions on the focus list:
- CrowdStrike (CRWD): “Strong secular tailwinds from the burgeoning cloud computing market will help fuel its top-tier 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 cybersecurity industry due to its differentiated platform and targeted acquisitions, as well as its growing focus on cloud-based security solutions. cloud”.
- ServiceNow (NOW): “ServiceNow is well positioned to capture the growth in demand for digital transformation services, thanks to its strong ecosystem of competitive products.”
- Splunk (SPLK) – “The company should continue to see strong revenue and revenue growth driven by continued adoption by new users, as well as strong renewal rates and upsell activity across its installed base” .
- Workday (WDAY): “We believe it is well positioned 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.”
Headline stocks on focus list:
- AMD (AMD): “As a key player in the ABC of technology, AMD is well positioned to take advantage of secular growth in data centers, AI, consoles and accelerators, given its leadership position in the GPU and microprocessor segments.”
- Alphabet (GOOG): USB favors “Alphabet for its best-in-class AI-powered search and advertising.”
- Amadeus IT Group (OTCPK:AMADY) – “We believe that their constant innovation in products and services, which revolves around the integration of machine learning models, will help improve their value proposition.”
- Applied Materials (AMAT): UBS favors “AMAT because of its leadership in semiconductor equipment, an industry that stands to benefit from strong demand for chips driven by big data and AI.”
- ASML (ASML): “We believe ASML deserves a P/E as the company is well positioned to benefit from increased silicon content in smart devices and its migration to advanced technology extreme ultraviolet lithography products” .
- Broadcom (AVGO) – “Broadcom is attractive value (P/E basis) given its consistent revenue growth and strong free cash flow generation.”
- Capgemini (OTCPK:CGEMY): UBS likes “Capgemini for its competitive AI and analytics services, which enable enterprise clients to implement market-ready AI and big data solutions.”
- Check Point Software (CHKP) – UBS favors “Check Point for its consistent participation in the global stock focus list, buyback strategy, relatively attractive free cash flow performance, and renewed efforts to spur growth through innovations from products”.
- Cisco Systems (CSCO): “We believe that their constant product innovation in the field of cyber security and AI will help drive long-term growth.”
- Cognizant Technology (CTSH) – A “leading IT services provider with a strong ability to scale AI initiatives for enterprise customers.”
- Dell (DELL): “We believe Dell will remain a dominant player as demand for big data and AI integration among businesses is likely to increase over the next decade.”
- Gartner (TI) – “Gartner is well positioned to benefit from its strong data access, technology spending and consulting services.”
- HP (HPQ): “HP is well positioned in the still 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 for its leadership in the semiconductor space, with memory capex a strong long-term catalyst.”
- Marvell Technology (MRVL) – “We expect the company to exceed its longest-running revenue model thanks to a strong order book in all end markets.”
- Micron Technology (MU): “Micron’s profitability should improve amid firm DRAM prices and continued cost improvements.”
- Microsoft (MSFT) – “Its valuation remains attractive compared to large-cap peers on a free cash flow basis.”
- MSCI (MSCI) – “MSCI is poised to take full advantage of the strong growth of its big data solutions.”
- Nvidia (NVDA) – UBS likes Nvidia “because of its leading position in the GPU market, a major semiconductor used for AI.”
- Oracle (ORCL) – “We believe that estimates have probably been lowered and we expect to stabilize revenue growth in its cloud and big data offering.”
- Taiwan Semiconductor (TSM) – UBS favors “TSMC for its defensive business model and exposure to multiple long-term growth segments such as AI and Internet of Things.”
- Texas Instruments (TXN) – TXN should “benefit from the growing semiconductor content in the automotive industry, with AI and big data as additional catalysts.”
- Thomson Reuters (TRI) – TRI is expected to “continue to gain market share, supported by its differentiated product offerings for knowledge workers.”
- VMware (VMW): “VMWare will benefit from the growing trend of enterprise migration to the cloud.”
SA contributor JR Research is advising buying technology hand over fist.