BofA Top Banker Rick Sherlund Predicts 2023 Tech Comeback, Delivers Bullish Software Call

BofA banker Rick Sherlund predicts tech optimism comeback after earnings season

Bank of America top banker Rick Sherlund sees a major market shift ahead.

According to Sherlund, optimism surrounding technology stocks will make a comeback this year — but the key is weathering upcoming earnings season first.

"What we need to do is de-risk 2023 numbers," the firm's vice chair of technology investment banking told CNBC's "Fast Money" on Thursday. "When we go through fourth quarter earnings, I think companies will indicate a reduction in force. They'll talk about cutting back on go-to-market spending... This is all encouraging."

Sherlund's expertise is software. He hit No. 1 on Institutional Investor's all-star analyst list 17 times in a row when he was an analyst.

And, he's known for leading Goldman Sachs' technology research team through the 2000 dot-com bubble, a time he calls "breathtaking." The latest market backdrop reminds him of prior downturns.

"2022 was a terrible year for these [software] stocks," said Sherlund. "We've seen tremendous compression in valuation. The good news is that downturns are ultimately followed by upturns. So, we've just got a lot of crosscurrents near-term."

His latest market forecast coincides with the tech-heavy Nasdaq's latest struggles. It fell 1.47% to 10,305.24 on Thursday, and it's on the cusp of a five-week losing streak.

Sherlund's base case is the move to high-growth areas such as the cloud will provide a long-term boost to software stocks.

"People have to recognize that this is an economically sensitive sector," he said. "Some of the demand may have been pulled forward during the pandemic period and when rates were zero."

Sherlund contends powerful secular tailwinds will ultimately lift the group. And, it should help kick off consolidation in the form of mergers and acquisitions in the year's second half.

"There will be an inclination to pick up the phone and have that M&A conversation where in the past it was probably little incentive to do that," said Sherlund. "There's an awful lot of dry powder out there."

He believes stability later this year in the Federal Reserve's interest rate hike trajectory will spark deal-making by helping the challenged leveraged finance market.

"That could finance a lot more M&A and LBOs [leveraged buyouts]," Sherlund said.

Disclaimer

RECENT NEWS

Binance Reopens, But Confidence Is Damaged

Binance reopens, but confidence cannot be switched back onThere Read more

Big Techs AI Spending Faces A Commercial Test

The loss of nearly $900bn in market value across the largest Read more

Musks $3.6tn Gamble

Can Tesla and SpaceX Become One Company? Read more

Riyadh's Investment Showcase Hit By War

Saudi Arabia has postponed its flagship Future Investment Initiative conference until 2027 after Houthi missile and dron... Read more

Airbus Says It Has "Everything In Hand"

Airbus says it will deliver around 870 aircraft this year, and its commercial chief insists the supply chain troubles of... Read more