As the Federal Reserve starts hiking rates to combat rising inflation, Baird says investors may want to consider owning these technology stocks that are best positioned to weather the storm.
The central bank announced a 0.25% rate hike last week in an attempt to combat rising inflation, which reached its highest level since 1982. The move marks the first rate increase since 2018 in what will likely be a series of hikes this year and in 2023.
Many fear that high inflation and rising rates could prove problematic for the tech industry, which is already hard-hit by supply chain disruptions. But investors shouldn’t bow out of the sector altogether.
There are some technology stocks prepared to withstand inflationary pressures and benefit in the long-term, according to Baird. Earlier this month, the bank shared a list of tech stocks to help clients play the market. It included dozens of companies that dabble in industries like cloud software, semiconductors, the internet and gaming.
Here are some of the stocks that Baird suggests:
BAIRD’S TOP TECHNOLOGY STOCK PICKS AMID RISING INFLATION
| TICKER | STOCK | PRICE AS OF 3/14 | PRICE TARGET |
|---|---|---|---|
| GOOGL | Alphabet | $2,519.02 | $3,200 |
| AMZN | Amazon | $2,837.06 | $4,000 |
| EA | Electronic Arts | $119.13 | $165 |
| NVDA | Nvidia | $213.30 | $360 |
| INTC | Intel | $44.40 | $60 |
| AAPL | Apple | $150.62 | $190 |
| TWLO | Twilio | $125.17 | $290 |
Among the picks are gaming stocks, which often benefit when consumers shelter at home. These stocks can offer more value than some paid entertainment choices, according to Baird. Further, the industry offers “very limited direct exposure to higher input prices” since most of the content is distributed through downloads.
Electronic Arts, which makes titles like FIFA and The Sims, maintains a strong position in mobile gaming and boasts evergreen sports titles that can help it ride out inflation. The video game stock is down 4.8% since the start of the year.
Internet stocks including e-commerce sites like Amazon can benefit as consumers shift away from using cars or look for online discounts, Baird said. Amazon’s stock is down more than 3% since the beginning of the year, but up about 5% this month.
Meanwhile, analysts called Google’s parent company Alphabet a “safe haven” for investors and said it will continue to dominate the online advertising industry. Baird estimates that Google drives about half of overall advertising online and will average roughly 15% growth over the next few years — more than the total market.
“We still also see GOOGL as a relative “safe haven” for investors with core search the bedrock of digital advertising and a “cost of sales” for many advertisers,” Baird wrote.
Alphabet’s stock is down about 6% year-to-date amid a broader tech sell-off. Baird gave the firm a $3,200 price target. Shares ended Monday’s session at $2,722.03. Apple, which has dipped 6.8% this year, also made the list and is well positioned to charge customers higher prices to offset costs, analysts wrote.
Another strong technology sector play is semiconductors like Intel and Nvidia, which can benefit from continued work-from-home trends, Baird said. Both stocks are down 7.9% and 9.1% this year, respectively. Baird gave Nvidia a price target of $360, and shares closed at $267.34 on Monday.
Chipmakers like Intel have announced several investments in new plants to fight the ongoing semiconductor shortage that has led many companies to cut production of consumer products like cars. Rising electric-vehicle demand will continue to drive growth in the industry, Baird wrote.