After another huge year in 2017, technology stocks are off to a roaring start in 2018. Just two weeks into the year, the Technology Select Sector SPDR (XLK) exchange-traded fund is already up another 4.5 percent. Tech stock traders are loving the bullish momentum, but long-term investors may be questioning some of the inflated valuations. Despite the concerns, Morgan Stanley analyst Brian Nowak[WD] says some of the hottest tech stocks of the past several years will continue to be top performers for years to come. Here are nine tech stocks Morgan Stanley still loves.
- Alphabet Inc (GOOGL)
Roughly 80 percent of Google’s total advertising revenue comes from its core Websites segment. Despite some concerns over slowing growth in this core business, Morgan Stanley predicts Google will once again find a way to top market growth expectations via innovation and monetization improvements. Morgan Stanley is projecting 20 percent growth from Google’s Website segment this year and 36 percent growth in mobile search. The firm expects Google to offset rising traffic acquisition costs by maintaining operating and spending discipline. Nowak predicts 2018 earnings per share of $43.26, roughly 4 percent above consensus estimates.
- Facebook Inc (FB)
Morgan Stanley says Facebook will overcome a 4 percent decline in core ad load in 2018 and deliver advertising revenue above consensus expectations. The firm is calling for a 20 percent increase in ad pricing this year and an overall 32 percent rise in ad revenue. Instagram, which may hit 1 billion monthly active users by mid-2018, will continue to be a major growth source, and streaming video could also be a multi-billion long-term opportunity. In the near-term, Facebook will need to overcome any short-term bumps to ad revenue due to changes it plans to make to its News Feed.
- Amazon.com, Inc (AMZN)
It seems as if Amazon has been outperforming the market every year now for a decade, but Morgan Stanley expects more of the same in 2018. In fact, Nowak says Amazon has a clear path to $2,000 per share if it successfully executes its cloud, e-commerce, and omni-channel retail strategies. Amazon Web Services, Amazon Prime subscription fees and digital advertsing provide three sources of high-growth, high-margin revenue for years to come. As always, Amazon will continue to reinvest in its business in areas such as Alexa and international video, laying the foundation for the next era of revenue growth.
- Priceline Group Inc (PCLN)
Morgan Stanley is bullish about the online travel sector as a whole this year, and Priceline will be one of the primary beneficiaries. Nowak says the online travel space is a secular growth story, even with increasing competition from Airbnb. He estimates Priceline will report 14 percent growth in bookings and 16 percent growth in room nights in 2018. Morgan Stanley also sees 8 percent upside to consensus earnings expectations in both 2018 and 2019. Finally, at a forward price-to-earnings ratio of just 22.7, PCLN stock is still a reasonable value.
- Expedia Inc (EXPE)
Together, Morgan Stanley expects Priceline and Expedia will capture 95 percent of the long-term growth in the online travel space. Nowak says Expedia’s focus in increasing its international hotel supply, particularly in targeted European and Asian markets, is a good long-term strategy. Expedia is gaining ground on Priceline in terms of international supply. Morgan Stanley estimates Expedia will grow core room nights by 14 percent in 2018 and another 13 percent in 2019. Over time, Nowak says integrating HomeAway’s listings with Expedia and Hotels.com will increase Expedia’s leverage in the alternative accommodations market as well.
- Activision Blizzard, Inc. (ATVI)
Morgan Stanley is anticipating…
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