Jefferies analyst Brent Thill discussed a positive outlook for the tech sector, predicting a shift from AI infrastructure stocks to software companies later this year, with strong confidence in firms like Microsoft and ServiceNow. He also highlighted AMD’s acquisition of ZT Systems as part of a broader trend of consolidation in the tech industry, particularly in AI, while maintaining a “buy” rating for Alphabet due to its favorable valuation and minimal regulatory concerns.
In a recent discussion on “The Street”, Jefferies analyst Brent Thill shared insights on the tech sector’s performance and future outlook. The tech industry has recently experienced its best week in nearly two years, highlighted by AMD’s acquisition of ZT Systems for $4.9 billion. This week also marks the 20th anniversary of Google’s IPO, during which its stock has surged over 7,000%. Thill maintains a positive stance on Alphabet, assigning it a “buy” rating with a price target of $220.
Thill emphasized a significant shift in investment trends, predicting a rotation from AI infrastructure stocks to software companies in the latter half of the year. He expressed confidence in major software players like Microsoft and ServiceNow, suggesting that as capital expenditure cycles evolve, investors will increasingly favor software stocks. He also noted that Google remains a strong investment due to its favorable valuation and the absence of significant antitrust concerns.
The analyst highlighted the ongoing favorable conditions for capital expenditures, regulatory environments, and valuations within the tech sector. He believes that these factors will contribute to a robust M&A cycle, particularly as larger tech companies seek to deploy their capital. Thill pointed out that the current market lacks a vibrant IPO scene, which could lead to increased consolidation among tech firms, especially in the software sector.
Regarding AMD’s acquisition of ZT Systems, Thill characterized it as part of a broader trend of consolidation in the tech industry, particularly in AI. He noted that companies with substantial capital and user bases are likely to dominate the AI landscape, and this acquisition underscores the importance of AI in the competitive tech environment. Thill anticipates that more such deals will emerge as companies strive to enhance their capabilities in AI.
Finally, reflecting on Google’s anniversary, Thill addressed concerns about potential regulatory actions and their implications for the company. He expressed skepticism about the likelihood of a breakup or significant fines, suggesting that if such actions were to occur, they could ultimately benefit investors. He concluded that the sum of the parts analysis for companies like Google and Amazon indicates that their individual components could be more valuable than the whole, reinforcing his belief in their long-term potential.