Seven tech stock winners amid the pandemic
Investors are anticipating a return to normalcy in the economy and the stock market following the 2020 health crisis. However, Bank of America (ticker: BAC) analyst Haim Israel says the pandemic will have a lasting effect on the world and the companies changing it. Companies and consumers are generating more data than ever; big governments are taking a more proactive approach in global economies; and a younger generation of investors are now focused on social distancing, the digital economy and environmental sustainability, Israel says. Here are seven of Bank of America's top tech stock picks amid the health crisis and for the post-pandemic world:
Amazon shares are up more than 65% through early August despite the crisis, a reflection of how perfectly positioned its major businesses were for a shelter-in-place economy. In the second quarter, Amazon reported blowout earnings and revenue numbers while much of the rest of the retail sector struggled. Online grocery sales tripled, Amazon Web Services revenue increased 29%, and net income roughly doubled from a year ago. Analyst Justin Post says the pandemic accelerated long-term shifts to online retail and cloud computing, two markets where Amazon dominates. Bank of America has a "buy" rating and $3,560 price target for AMZN stock.
Microsoft Corp. (MSFT)
Microsoft is Amazon's top competition in the cloud services space and has been gaining market share from Amazon in recent years. Azure revenue was up 47% in the second quarter. Microsoft's gaming business is also thriving as millions of bored Americans are stuck at home. Xbox content and services revenue increased 65% in the second quarter, up from just 2% year-over-year growth in the first quarter. Analyst Kash Rangan says Microsoft is a secular growth story with attractive margins and a reasonable valuation. Bank of America has a "buy" rating and $250 price target for MSFT stock.
Shares of Google parent company Alphabet are up about 9% so far in 2020, but the stock has lagged most of its mega-cap tech peers because of concerns about online advertising revenue. Alphabet even reported a 2% drop in overall revenue in the second quarter, the company's first-ever quarter of negative sales growth. However, Alphabet reported that both search and YouTube advertising revenue growth accelerated in July. Post says Google Cloud and YouTube subscription growth should help support the stock while the advertising business recovers. Bank of America has a "buy" rating and $1,730 price target for GOOGL stock.
From accusations of anti-competitive practices to mishandling of user data to improper content policing, Facebook in recent years has faced wave after wave of negative headlines. Despite the controversy, the company's business and share price continue to shine. Facebook's latest hurdle was an advertiser boycott targeting hate speech on its platforms, but the boycott didn't make a dent in Facebook's numbers. The company reported 11% revenue growth in the second quarter. Post says the company still has a number of long-term monetization opportunities, including Messenger, WhatsApp, Watch and e-commerce. Bank of America has a "buy" rating and $290 price target for FB stock.
Alibaba Group Holding (BABA)
Like Amazon, Alibaba is China's leader in both e-commerce and cloud computing. Alibaba has also had many positive catalysts in 2020, including a trade deal between the U.S. and China in January and a potential $30 billion initial public offering of its Ant Financial affiliate. In the most recent quarter, Alibaba reported 62% cloud revenue growth, more than doubling Amazon Web Services' 29% growth rate. Analyst Eddie Leung says Alibaba will likely remain the long-term leader in China's online retail space. Bank of America has a "buy" rating and $301 price target for BABA stock.
Baidu is the leader in online and mobile search in China. As with U.S. search giant Google, Baidu has seen revenue drop slightly -- by 6.5% in its first quarter -- because of the health crisis. Revenue from online video platform iQIYI was up 9% year over year. Leung says Baidu has successfully transitioned its business to a mobile model, and it's expanding advertising products to better monetize its massive user base. Over time, Leung says Baidu has a number of additional growth opportunities, including iQIYI, Maps and apps. Bank of America has a "buy" rating and $186 price target for BIDU stock.
As the global economy becomes more digitized and complex, it will need a massive amount of processing power to support it. Analyst Vivek Arya says Nvidia is his top stock pick in the semiconductor group because of its huge long-term opportunities in data centers, cloud computing, gaming, artificial intelligence, autonomous vehicles and other high-growth fields. In May, Nvidia reported 39% revenue growth for the first quarter, including 80% data center growth. Arya says the company has a solid balance sheet as well. Bank of America has a "buy" rating and $520 price target for NVDA stock.
Bank of America says to buy these seven tech stocks:
-- Amazon.com (AMZN)
-- Microsoft Corp. (MSFT)
-- Facebook (FB)
-- Alibaba Group Holding (BABA)
-- Baidu (BIDU)
-- Nvidia (NVDA)