Market professionals reveal what’s next for the technology and name the top stock picks of 2023

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If you invested in tech stocks in 2022, chances are you’re at a loss right now. The tech-heavy Nasdaq Composite is down more than 30% this year. That’s worse than the S&P 500 or the Dow Jones Industrial Average, which have lost about 20% and 10% of their market values, respectively, over the same period. Even big tech names, such as Apple and Alphabet long considered something of a safe haven for their relatively more resilient balance sheets and industry dominance, have not been spared either. As they head into 2023, investors could be forgiven for thinking the worst of the tech debacle is over. But some market observers believe there is more pain to come, with a full recovery likely to take years. But that doesn’t mean investors should avoid the sector altogether, according to several Wall Street pros. Instead, the common refrain is that investors are selective. Big Tech “isn’t dead” Michael Yoshikami, founder and CEO of Destination Wealth Management, said Big Tech “isn’t dead,” even if it will take time to recover. “If you’re a long-term investor, I think you can hold yourself back in this difficult time and reposition yourself on the names that will be the established ones and going forward. It sounds very Warren Buffett-esque and that’s exactly how I see it in terms of the tech game. right now,” he told CNBC’s “Street Signs Asia” on Tuesday. “This isn’t going to be a shocking announcement to people, but companies like Amazon, Apple and Alphabet, these are names that are really going to get through this difficult time that we’re having with this interest rate transition,” he said. added. Goldman Sachs and Citi also see pockets of opportunity within Big Tech, naming Amazon and Meta Platforms as their top picks for 2023. They share the same narratives,” Goldman said in a Dec. 13 note. “These narratives include consolidated and downsized end-market positioning, the ability to manage an improved margin trajectory in 2023 and beyond, as well as a “wall of worries” that has become more pronounced over the past six months,” he added. Meanwhile, the Citi analyst Ygal Arounian wrote in a Dec. 12 note that “the long-term secular benefits outweigh the short-term ones. Be selective BlackRock also urges investors to be selective. The world’s largest wealth manager said Core technology products will likely stand out from the pack next year.”Technology is not a monolith. We believe cybersecurity and robotics have the potential to reverse the business cycle, as cybersecurity has moved from a niche to a necessity and robots are critical to combating supply chain challenges, labor shortages and inflation.” Jay Jacobs, the US head of thematic and active equity exchange-traded funds at BlackRock, wrote in the company’s “2023 Thematic Outlook. BlackRock isn’t the only bull on cybersecurity stocks. It’s also a top investor.” tech guy Paul Meeks is a fan.” I still love cybersecurity, which will thrive through any kind of recession. There is a company called Palo Alto Networks. I still think the cloud has a lot of legs, not just in the US, but overseas as well,” Meeks, a portfolio manager at Independent Solutions Wealth Management, told CNBC in an interview last month. Wedbush Dan Ives, a longtime fan of the cybersecurity industry, wrote in a Dec. 18 memo that cybersecurity spending will be a “pillar of strength” for the tech sector in 2023. His top picks include Palo Alto, Zscaler and Tenable Holdings said the setup for tech in 2023 was “significantly bullish” despite challenging macro conditions, with tech stocks the least owned since 2009 and with “huge amounts of bad news” already priced in. “We think overall the tech sector will grow about 20% in 2023 from current levels with Big Tech, software and semis leading the charge despite macro/Fed wild cards,” he added. Market researchers remain cautious. “Overall, we remain neutral on technology entry in 2023 and recommend a market weighting,” Bernstein analysts, led by Toni Sacconaghi, wrote in a Dec. 19 note. He noted that the sector is not “as inexpensive as its retirement might suggest” and that there are “still high levels” of unprofitable technology stocks. The economic backdrop will be key in determining technology positioning in 2023, he said, noting that technology has historically underperformed during periods of slowdown and recession, while it has strongly outperformed during periods of recovery and expansion. “As a result, if the economy does eventually have a soft landing in 2023, technology will likely offer strong upside potential,” he added. A new approach? Others argue for a different approach to visual technology. The sector has traditionally been seen as a growth industry, but some analysts say tech stocks are now value stocks instead. Deutsche Bank analyst Galina Pozdnyakova said that new macroeconomic conditions have stripped the “growth” label from tech stocks. “Yet reports of their deaths are greatly exaggerated. In fact, many tech companies generate substantial cash and may become considered ‘value’ investments. Inevitably, something will rise and take their place as ‘growth’ stocks. But instead of belonging to a specific sector, such companies will need to have a number of characteristics in line with the new macro environment,” he said. The bank has identified several new growth leaders, including companies involved in efficiency-enhancing technologies that increase productivity. These companies can surpass the consumer-centric technology that has dominated much of the last decade, according to Pozdnyakova. BlackRock shares this view. “We believe investors may not be well served by simply ‘buying growth’ or ‘buying technology.’ While more attractive valuations may force investors to revise growth stocks in 2023, investors may want to structure their portfolio allocations more precisely “Jacobs said. “Attractive relative valuations could be capitalized on, with opportunities driven by fiscal spending, near-term medical innovation, and countercyclical technology. Regardless of sector or geography, it can solve this challenge and enable investors to seek outperformance,” he added. CNBC’s Michael Bloom and Carmen Reinicke contributed to this report.

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