Even after a more than 70% sell-off, investors should still avoid the work-from-home “poster children” that saw business boom amid a global pandemic, according to a Monday note from Wedbush analyst Dan Ives.
Ives downgraded Docusign to “Underperform” from “Neutral” and said as markets enter risk-off mode, it will get even tougher for beaten down tech stocks to show a renewed life.
And that environment shows no signs of going away anytime soon as the Federal Reserve continues to go down the path of aggressive tightening via both interest rate hikes and a reduction of its balance sheet. The Fed is expected to raise the Federal Funds Rate by 50 basis points on Wednesday.
“The magnitude and velocity of the sell-off in tech names have surprised us this year as fears of a recession and no more easy Fed-driven money has caused multiples to fall off a cliff in tech stocks with so much pain inflicted on the bulls,” Ives said.
But just because certain tech stocks have fallen so far from their peak, that doesn’t mean they should be indiscriminately bought by investors.
“The work-from-home poster children such as Netflix, Zoom, DocuSign, etc. will continue to see multiples compress as results soften off pandemic highs,” Ives said, adding that Docusign in particular could see difficult growth ahead, and that it’s stock price doesn’t reflect that reality.
“In a slowing backdrop, we acknowledge that some tech names will be under the microscope for budget dollars and have business models skewed towards flush budgets with clearly tougher times ahead,” Ives said.
Ives also downgraded shares of Matterport and C3.ai to “Neutral” due to its high exposure to the real estate market and a slowdown in enterprise deals for AI technologies, respectively. But while Ives is getting bearish on some work-from-home stocks, the tech analyst remains constructive on other areas of the tech market like cybersecurity and the cloud.
“We continue to view this bifurcated tech tape will be driven higher by software, semis, cyber security, and product-driven names (Apple) as part of this digital transformation,” Ives said.