Notwithstanding near-term weakness, tech stocks are on a multiyear rally, giving rise to fears of a long-overdue correction, Wedbush analyst Daniel Ives said in a note.
The near-term sell-off, the analyst said, is a painful digestion period, along with a reaction to omicron fears.
The Street has also begun discounting a tighter Fed and a constrained valuation framework for tech stocks, he said.
"We remain firmly bullish on tech stocks for 2022," Ives noted.
Here are Wedbush's top 10 tech predictions for the year 2022:
1. Apple AR/VR Glass: Apple, Inc. (NASDAQ:AAPL) is expected to launch its long-awaited AR/VR headset Apple Glasses in the summer of 2022. This will serve as a major growth catalyst for Apple shares by way of providing scope for the further monetization of the company's installed base, the analyst said.
2. Nasdaq Year-End Target: Wedbush's year-end 2022 target for the Nasdaq Composite Index is 19,000 thanks to the digital transformation among enterprises and consumers. The underlying growth prospects for the tech sector are 2-3 times the normalized/historical patterns, the firm said.
3. Metaverse From Hype To Reality: The metaverse will morph from hype to reality as more tech stalwarts such as Meta Platforms, Inc. (NASDAQ:FB), Apple, Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) heavily invest billions in this theme over the next year, Ives said. The analyst expects significant M&A activity on this front.
4. Spike In Cybersecurity Budgets: Ives expects cybersecurity budgets to increase by 21% in 2022, up about 100 basis points year-over-year from a robust 2021. Among Wedbush's favorite cybersecurity plays for 2022 are Zscaler, Inc. (NASDAQ:ZS), Tenable Holdings, Inc. (NASDAQ:TENB), CyberArk Software Ltd. (NASDAQ:CYBR), Varonis Systems, Inc. (NASDAQ:VRNS), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), Fortinet, Inc. (NASDAQ:FTNT) and Palo Alto Networks, Inc. (NASDAQ:PANW).
Related Link: Will Apple Hit $3 Trillion Market Cap This Week?
5. M&A Activity To Surge: The year 2022 will see a surge in M&A among both strategic/financial buyers, Ives said. The top 5 M&A candidates for 2022, according to the analyst, are Cerence Inc. (NASDAQ:CRNC), Matterport, Inc. (NASDAQ:MTTR), Varonis, Rapid7, Inc. (NASDAQ:RPD) and Sailpoint.
6. Chip Shortage To Ease: The chip shortage out of Asia will significantly abate in the first half of 2022 and remove a major overhang on the tech sector, according to Wedbush.
"We view Apple and chip players as the best springboard bets to benefit from this key dynamic easing," the analyst wrote in the note.
7. Regulatory Environment A Threat: The regulatory environment both in the U.S. and Europe will pose a threat to FAANG names around antitrust and monopolistic concerns, Wedbush anticipates. Regulatory issues will largely result in fines (led by the EU) and constrained M&A prospects, rather than any structural breakups of these tech stalwarts, it added.
8. Cloud Arms Race To Intensify: Amazon, Inc. (NASDAQ:AMZN), Microsoft and Google will lead the way in chasing a future $1 trillion global cloud computing services market, followed by Oracle Corporation (NYSE:ORCL) and International Business Machines Corporation (NYSE:IBM), Ives said. By the end of 2022, about 50% of workloads will likely be on the cloud, as more enterprises/governments head towards the cloud, he added.
9. Chinese Techs To Continue To Bleed: The impossible-to-predict actions out of Beijing will continue to result in more global investing dollars rotating from Chinese tech to U.S. tech stocks in 2022, Ives said.
10: $3T Club To Have 2 Members: Apple, followed by Microsoft, will eclipse the $3-trillion market cap threshold in 2022, Wedbush said.