Wedbush Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss tech stocks, investor sentiment, the strength of the U.S. dollar, Apple increasing iPhone production in India, and recessionary risks.

Video Transcript

[MUSIC PLAYING]

BRAD SMITH: Tech stocks slammed as the strong dollar bites hard. Economic conditions making it even more risky for companies like Facebook parent company, Meta, and Google parent company, Alphabet, that are seeing hits to their advertising businesses, especially after privacy pushes from Apple, not to mention a wind down in some of that marketing spending right now from other companies.

For more, let's bring in Dan Ives, Wedbush Managing Director and Senior Equity Analyst. Great to kick off the week with you, Dan. First and foremost, really in focus right now, even before we start this week's trading, is the FX headwinds that are going to be persistent here in the near term. You know, exactly what type of impact would you expect that to really kind of press upon some companies?

DAN IVES: Yeah, there's going to be about another 2 to 300-bit headwind for tech. And I think you'll see a lot of that come out in terms of 3Q earnings season. Obviously, for large [INAUDIBLE] it's a headwind. But I'd also say investors are basically factored in here. I mean, at these prices, that's already expectations.

It's about what non-FX demand ultimately looks like and what tech numbers cuts we're going to see. I think, a lot of that's already starting to get baked into these stocks.

BRIAN SOZZI: Hey Dan, I caught up with Slack's founder, Stewart Butterfield, at Dreamforce last week. Take a listen. I want to get your reaction on the other side. We talked about tech valuations. Here's what he said.

STEWART BUTTERFIELD: The multiples have probably come down to something that looks pretty reasonable. A lot of I think the average even for [INAUDIBLE] across the board is something like 5X forward revenue, which is, yeah, compared to I don't even know what the average was 18 or 20X or something like that at the peak.

I think the open question for investors is still, do we see a change in demand and therefore an actual change in performance? Because the multiples are probably about good. And if we collectively determine that we're not going to see a real decrease in demand, we're not going to see a real decrease in economic growth, then I think we have a lot of upside from here.

BRIAN SOZZI: Dan, when you talk to clients right now, do you get the sense they're willing to come in here and start nibbling on these discounted valuations? And then within your coverage universe, are there any screaming buys that you're looking at from a valuation perspective?

DAN IVES: Yeah, look, Brian, I think it's the most negative as I've seen tech going back to 2009. From an institutional investor perspective in terms of appetite and what we're seeing with this risk off, and I just go back, I think we're starting to see nibbling. I think there's continued fears, where every time you buy the rally here, it continues to be disappointed.

I think specifically names Apple, Microsoft, I think Salesforce, at these valuations, I think cybersecurity. Names like Palo Alto, even down the spectrum from a valuation like a check point, that's where you're starting to see appetite as we go into 3Q, 4Q. But no doubt. I mean this right now is just a dark time for tech. And I think investors continue to just be white knuckle given what we're seeing the backdrop.

BRAD SMITH: You know, it's probably also fair to recognize here that Slack was an acquisition that Salesforce made. Of course, the 27-ish billion dollar acquisition and in this environment hard to see exactly where some of those acquisition opportunities for smaller companies that perhaps may not go into the public markets by themselves, as a standalone.

Where we might see some of that dealmaking take place? And how institutional investors like yourselves would also be watching over those decisions that be made and that capital that goes out the door, either in stock or in cash at this point in time from some of those major tech companies that have a propensity to acquire in order to grow.

DAN IVES: Yeah, and look, I mean, you go back to what did Salesforce actually pay for Slack. I mean, I think many investors in Salesforce wish they bought them today rather than when they did that multiple. You saw Adobe when they after Figma in terms of what they pay on the $20 billion stock got crushed there.

So I think investors, they want to see M&A, but you want to see digestible valuations, because I think that's sort of going to be the balancing act where we're going to see a lot of strategic as well as financial M&A within tech. And I would just take a step back. I mean, what, 22 years doing this.

In recessionary type environments, where it's very easy to yell fire in a crowded theater, in tech those have been the best opportunities. If you have a horizon 12 to 18 months down the road, and I think we're starting to get to those points right now where it's reminding me of '01, '09 in terms of sentiment and tech.

And I think fundamentally, especially software, cybersecurity names like Apple where demand continues to be ahead of iPhone 13, I think [INAUDIBLE] words in the bite and that's just important as we go into 3Q.

BRIAN SOZZI: Dan, have you been doing this for 22 years?

DAN IVES: 22 years, on my 22nd year.

BRIAN SOZZI: Time flies when you're having fun. Let's go back on to Apple, because I look to you as a little bit of a Apple whisperer. Now if the market is pricing in a mild recession or something worse. How does that impact iPhone demand this holiday season and into next year?

DAN IVES: Well, no doubt in terms of the ultimate demand, you'll see around the edges that it will start to come up. But I can tell you Brian, I mean, coming out of the gates iPhone 14, specifically Pro, looks like 85% to 90% in terms of the mix. That's strong for ASPs. And that's trending, what I believe, 8, 10% ahead of iPhone 13.

We can clearly see demand start to taper here. But at least so far I think supply is more the issue than demand. And I think what's factored into Apple. You're factoring in that you're going to have a 5% to 7% numbers cut. I just don't believe you see it based on what we see today.

And I think that continues to be the tug-of-war between the Bulls and the Bears, especially for someone a name like Apple, where obviously that's going to take the market up, and as well as down on both sides.

BRIAN SOZZI: All right, I'll leave it there. Dan Ives, Wedbush Managing Director and Senior Equity Analyst. Always good to see you. Thanks for hopping on. We appreciate it.

DAN IVES: Thank you.