Cybersecurity fundamentals improving 'by the day': Strategist

Nvidia (NVDA) is trading lower on Friday after experiencing a run the previous week. Some on Wall Street have begun to question whether the stock can continue its historic rally. Meanwhile, Microsoft (MSFT) has reclaimed its title as the most valuable US company in market capitalization.

Spear Invest Founder and CIO Ivana Delevska joins Market Domination Overtime to give insight into the performance of the Big Tech stocks and explain what investors should consider for their portfolios.

"We think that mega-caps drove the first leg of this upturn this year. And as we get into the second half, we think the upturn will broaden to mid-cap stocks. So that's where we are really looking most for opportunities. We still like Nvidia. We still see a lot of upside, but we don't think it's going to be as outsized of a performer compared to the rest of our portfolio," Delevska explains.

She adds that cybersecurity is a "particularly exciting" sector because the fundamentals are improving "by the day." Demand is high given the volume of cyber attacks affecting large companies on a daily basis, Delevska notes.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Nicholas Jacobino

Video transcript

And Microsoft closing the week back on the throne as the most valuable company.

Microsoft competing with NVIDIA and Apple recently, with many wondering who will hold on to the top market cap spot for more on what investors should be looking for in the tech sector.

We're bringing in Ivana Della Vesa, co founder.

Excuse me, founder and CEO of Spear Invest.

So lay it out for us here.

Thanks for having me, guys.

So, uh, we think that mega cups drove the first leg of this upturn this year, and as we get into the second half, we think the upturn will broaden to mid cap stock.

So that's where we are really looking most for opportunities.

We still like NVIDIA.

We still see a lot of upside, but we don't think it's going to be as outsized of a performer compared to the rest of our portfolio as we are looking to see.

So why do you think that that is the case?

So if you look at valuation within the mega sector, we have seen valuations actually expand.

So while the recovery has been driven mostly by earnings by now, we are starting to see some valuation expansion as well.

On the MidCap side, we are actually like within the software space, for example, we are actually seeing multiples close to the bottom of 2020 2022 when we really saw interest rates spike and the whole tech sector collapse.

So multiples are still pretty depressed in that space compared to megas, where they don't look expensive, but they are definitely much more reasonable.

Could you tell us some names here, these mid cap names and software that you're looking at and why?

So why do you think software has been lagging the semiconductor space over the last few months?

So first of all, it does make a lot of sense that cyclicals usually lead us out of a downturn.

So that's where you are going to see the first investment take place.

You first need to invest in hardware, and as you get further into the cycle, you are going to be investing in applications and tools.

And that's where you really use the software to build to build these applications and tools.

So we would expect a log, usually to occur of six months to almost a year sometimes, but it has been actually very unusual and it is driven by interest rates trickling up that valuations have been really impacted in the software space, so the key will be to see the 10 year stabilised at a level.

It doesn't really matter if it's 3.5, 4 or 4.5%.

The key is for it just not to keep moving up exactly and continue to create a headwind.

So as soon as we see this stabilise that will provide a good floor for the software stock valuation and then it is going to come back to earnings and then specifically about sectors.

Cyber security is one space that we are particularly excited about because fundamentals are really improving by the day you are hearing of cyber attacks and ransomware pretty much on a daily basis of large getting affected.

So that's the area that we're mostly focused on.

I want to get your reaction to a note that we talked about earlier, which was a downgrade of palent here that talked about the, the analyst said.

It called it a gluttonous valuation, but also said that software is maybe not going to see the strength that you're talking about in part because the Gen Gen A.

Revenue huge increases for software have not really materialised.

And I'm just curious to get your thoughts on that.

Well, the revenues haven't really materials because of the luck that I was talking about before.

So I think it's really gonna take some time for companies.

Right now, all of the investment is on the hardware side.

So you see, you see all the hyper scalar invest billions of dollars just in the hardware itself as companies build the applications.

That's when you will see the impact on on the software side.

I think there is.

A lot of this is as the Stock seven performed as well a lot of people are talking about Well, will JA I replace of the software tools?

No, that's not how it works.

You really can't build anything without cyber security protection, right?

You really can't build anything without some of these data infrastructure tools and access to LLM models.

So all of these are really important tools.

They're just gonna see the impact a little further into the tech recovery cycle.

Anything further downstream that you wouldn't make an investment in right now, but you're thinking all right.

In three years, let's take a look at this.

You know, a longer investment thesis.

So absolutely, the application layer would be the furthest out.

So first we are seeing the hardware.

Then you see this middle layer of infrastructure, which is cyber security data infrastructure.

That's where we are looking to invest in for the next year.

And then, as you look further, you're going to see the application layer, which is actual applications.

The public facing stuff that that's right.

That's right.

So this would be like beneficiaries would be companies like systems that provide tools.

Maybe that will optimise your sales force.

It could be companies like Tesla that offer robots or autonomous driving.

All of these are applications of a I that have not really gained scale and are still a little bit in a proof of concept stage.

Yeah, that's really interesting.

Um, I, I can say anecdotally, it makes a lot of sense that they haven't seen the productivity gains yet.

And sales force Tesla.

Maybe in three years.

Uh, get that boost.

Ivana, Thank you for dropping by here