According to UBS, AI, big data and cybersecurity are at an inflection point that should see faster adoptions over the next few years.
Demand for what she calls “the ABCs of technology” is underpinned by “powerful secular trends around automation, analytics and security,” said the UBS strategist Sundeep Gantori wrote in a note.
“We expect the combined revenues of the three segments to grow from $386 billion in 2020 to $625 billion in 2025, implying an average clip of 10% per year, higher than the mid to high numbers we forecast for the industry. technological in the broad sense (NYSEARCA:XLK),” Gantori said.
“We believe investors would be better rewarded by investing in a diverse group of incumbents and disruptors with exposure to all three key segments,” he said. “We are reducing the weighting of disruptors to 10% (and increasing the weighting of incumbents to 90%) due to the uncertainty of near-term valuations in a rising rate environment.”
Disruptive actions on the focus list:
- CrowdStrike (CRWD) – “Strong secular tailwinds from the growing cloud computing market will help bolster its top-tier growth.”
- Fortinet (FTNT) – “As a leader in cybersecurity, we believe it is well positioned to capture secular growth trends.”
- Palo Alto Networks (PANW) – “Long term, we expect the company to gain market share in the highly fragmented cybersecurity industry due to its differentiated platform and targeted acquisitions, as well as its growing interest in cloud-based security solutions.
- ServiceNow (NOW) – “ServiceNow is well positioned to capture the growth in demand for digital transformation services, thanks to its strong ecosystem of competitive products.”
- Splunk (SPLK) – “The company should continue to see strong revenue and billing growth thanks to continued adoption by new users as well as strong renewal rates and upselling activity in its base. installed.”
- Workday (WDAY) – “We believe it is well positioned to take advantage of cross-selling opportunities in planning, procurement and analytics software.”
- Zscaler (ZS) – “As a leader in cybersecurity, we believe it is well positioned to capture secular growth trends.”
Historical actions on the focus list:
- AMD (AMD) – “As a key incumbent in the ABCs of technology, AMD is well positioned to take advantage of secular growth in data centers, AI, consoles and accelerators, given of its leading position in the GPU and microprocessor segments.”
- Alphabet (GOOG) – USB favors “Alphabet for its top-notch AI-powered search and advertising.”
- Amadeus IT Group (OTCPK:AMADY) – “We believe that the constant innovation of its products and services around the integration of machine learning models will help improve its value proposition.”
- Applied Materials (AMAT) – UBS favors “AMAT because of its leadership in semiconductor equipment, an industry that should benefit from strong demand for chips driven by big data and AI.”
- ASML (ASML) – “We believe ASML deserves a higher valuation (P/E) given that the company is well positioned to benefit from the increased silicon content of smart devices and its migration to advanced technology ultraviolet lithography.”
- Broadcom (AVGO) – “Broadcom is attractively valued (based on P/E) given its steady revenue growth and strong free cash flow generation. »
- Capgemini (OTCPK:CGEMY) – UBS loves “Capgemini for its competitive AI and analytics services, enabling enterprise clients to implement market-ready AI and big data solutions.”
- Check Point Software (CHKP) – UBS favors “Check Point for its consistent global stock list, buyback strategy, relatively attractive free cash flow performance and renewed efforts to drive growth through product innovations” .
- Cisco Systems (CSCO) – “We are confident that its continued cybersecurity and AI product innovation will help fuel long-term growth.”
- Cognizant Technology (CTSH) – A “leading IT services provider with a strong ability to scale AI initiatives for enterprise customers.”
- Dell (DELL) – “We believe Dell will remain a dominant player as demand for big data integration and artificial intelligence among enterprises is likely to increase over the next decade.”
- Gartner (IT) – “Gartner is well positioned to benefit from its robust data access, technology spend and advisory services.”
- HP (HPQ) – “HP is well positioned in the still nascent 3D printing market.”
- Intel (INTC) – “We expect the company to make meaningful improvements to its manufacturing process and limit share losses to manageable levels.”
- Lam Research (LRCX) – UBS likes “LAM Research for its leadership in semiconductors, with memory capital spending as a powerful long-term catalyst.”
- Marvell Technology (MRVL) – “We expect the company to outperform its longer-term revenue model given a strong backlog in all end markets.”
- Micron Technology (MU) – “Micron’s profitability should improve amid firm DRAM prices and continued cost improvements.”
- Microsoft (MSFT) – “Its valuation is still attractive relative to its large-cap peers on a free cash flow basis.”
- MSCI (MSCI) – “MSCI is poised to make the most of the strong growth in its Big Data solutions.”
- Nvidia (NVDA) – UBS likes Nvidia “given its market-leading position in GPUs, an important semiconductor used for AI.”
- Oracle (ORCL) – “We believe estimates have likely bottomed and expect revenue growth to stabilize from its cloud and big data offering.”
- Taiwan Semiconductor (TSM) – UBS favors “TSMC for its defensive business model and its exposure to several long-term growth segments like artificial intelligence and the Internet of Things.”
- Texas Instruments (TXN) – TXN stands to “benefit from the growing semiconductor content in the automotive industry, with AI and big data as additional enablers.”
- Thomson Reuters (TRI) – TRI expects to “continue to gain market share, supported by its differentiated product offerings for knowledge workers.”
- VMware (VMW) – “VMWare will benefit from the growing trend of companies migrating to the cloud.”
SA contributor JR Research advises buying the technology by hand.