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What to expect from software stocks in 2023?

By:
on Jan 3, 2023
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  • Trivariate's Adam Parker bets software stocks will outperform in 2023.
  • He explained his constructive view on CNBC's "Closing Bell: Overtime".
  • The iShares Expanded Tech-Software Sector ETF ended 2022 down 35%.

Now is a suitable time to start dipping the toe in a handful of carefully picked software stocks, says Adam Parker. He’s the Founder and Chief Executive of Trivariate Research.

Parker bets software will outperform this year

“IGV” – the iShares Expanded Tech-Software Sector ETF ended 2022 down nearly 35%.

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According to Parker, though, the new year will be a different story for these tech stocks. Speaking with CNBC’s Scott Wapner, he said:

There’s tons of software companies down 80% that will enhance productivity – a lot of names we think have some revenue capability. I think this earnings season is going to be great. Looking out in 2023, I’ll bet you software outperforms.

As evident, part of the reason that Parker is constructive on “software” is because valuations have reset. That’s to say the risk is more skewed now to the upside than otherwise.

Should you stay away from profitless tech?

On the other hand, he added, the U.S. central bank will turn less hawkish in the first half of 2023 and may even revert to dovish in the back half; thereby clearing the way for multiple expansion.

Interestingly, Parker is not entirely against owning the profitless tech companies either. On CNBC’s “Closing Bell: Overtime”, he noted:

Software businesses can grow. Do you think there are no businesses today that are losing money that will be good ideas to own over the next two, three, four years? Of course there are. So, I’m starting to think I got to own some growth.

Also on Tuesday, Morgan Stanley dubbed ServiceNow Inc (NYSE: SNOW) its top pick in this space for 2023.