Cloud computing, enterprise software and cybersecurity stocks underperformed the broader market in 2022, but one top analyst sees value in the space. The Wisdom Tree Cloud Computing ETF , which includes Salesforce, Adobe and Shopify, fell more than 51% last year. The First Trust Nasdaq Cybersecurity ETF dropped more than 26%. The rapid rise in interest rates and increasing U.S. dollar put pressure on many of these high growth stocks that get a significant portion of revenue from international markets. “It’s the biggest wild card out there,” said Dan Ives, technology analyst at Wedbush, to CNBC PRO about the impact of rates on the sector. “The risk off that we are seeing is Fed driven. They continue to put a foot on the accelerator with rates. You continue to see tech stocks sell off. I think the biggest worry now is what is the next step. Is it a softer macro?” Ives remains bullish on the sector and the trend of companies moving to the cloud, despite the recent stock performance. “The important thing, less than 50% of workloads are on the cloud, so there is still a transformation. But no doubt, we are starting to see cracks in the armor and some pullbacks and longer sales cycles,” he said. Top Picks Ives says his top pick for the sector is Microsoft . Other top picks from Ives are Salesforce , Zscaler , Palo Alto Networks , and Crowdstrike . But Ives sees another big driver of the stocks next year, especially smaller names: mergers Private equity firms globally have approximately $940 billion in “dry powder” or money not currently allocated for investment, according to the latest data from Prequin. Some of that could go to the cloud space. For possible takeout candidates and more on the 2023 outlook for the cloud, see the video above exclusive for the PRO audience.
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