No corner of the stock market has had as good of a year as the tech sector.
In particular, the 'FAANG' stocks -- Facebook Inc. (FB) - Get Report , Amazon.com Inc. (AMZN) - Get Report , Apple Inc. (AAPL) - Get Report , Netflix Inc. (NFLX) - Get Report and Alphabet Inc. (GOOGL) - Get Report -- have dominated the market, with many up more than 50% in 2017, which is higher than the Nasdaq's rise of 29.3% so far this year.
Some experts believe that tech's stunning run may come to an end in 2018, as investors moderate their view of earnings growth over value and other macroeconomic factors take shape, including possible negative effects from the Federal Communications Commission's decision to end net neutrality.
Not everyone shares that view, however. GBH Insights analyst Daniel Ives believes that FAANG stocks, especially, are in the "pole position" in tech next year. The regulatory environment, corporate tax changes and the broader macro backdrop are likely to create challenges and opportunities for the big tech names in 2018, he said.
Still, Ives said he remains bullish on tech based on several underlying themes, including streaming/content, e-commerce growth, online ad growth and the shift to the cloud among enterprises.
Those trends should be beneficial not just for FANG names, but also for the rest of the tech sector, Ives noted. Here's his top themes for tech in 2018:
Combined Disney/Fox goes head-to-head with Netflix
If Walt Disney Co.
is successful in completing its $52.4 billion bid for most of Twenty-First Century Fox's
assets, Disney will have a strong chance of becoming the "content king," Ives said. All eyes will be focused on how Disney's direct-to-consumer platform plays out, especially once it has Fox's controlling stake of Hulu.
A marriage of these assets will allow Disney to "invade Netflix's golden streaming sandbox" as it builds a more competitive position on the content and streaming front, he added.
"We view this as a home run deal for Disney and while it's an aggressive acquisition with a high price tag, in our opinion this is the right move at the right time," Ives explained.
An iPhone X super-cycle tips Apple's market cap to $1 trillion
According to Ives, all signs point to Apple enjoying an iPhone X super cycle, as existing iPhone users look to upgrade and Apple's various supply chain issues are worked out.
If an iPhone X super-cycle materializes, it could give Apple more than $12 worth of potential earnings power heading into 2019.
"With a growing services segment, a renaissance of China growth, $250+ billion of cash in the coffer (repatriation/tax code changes, buybacks, M&A could be further catalysts) and a major upgrade cycle on the horizon that Apple shares in a best case/bull case scenario could be in the $210-$230 range (17x-18x forward P/E) over the next year in our opinion and thus becoming the first member of the "trillion-dollar market cap club.," Ives said.
Apple's market cap currently hovers around $898.5 billion. The tech giant briefly flirted with a $1 trillion valuation in November when it released the 10th anniversary iPhone X.
Instagram on track to hit 1 billion monthly users, which could mean big things for Facebook
Facebook has been executing "extremely well" in its ad growth model and monetization, but Instagram, the company's "golden jewel," still has more room for growth, Ives said.
Instagram appears to be on track to hit 1 billion monthly active users, as its ad business continues to ramp. That could bring big gains for Facebook, as Wall Street still seems to be "underappreciating" Instagram, he added.
Monetizing Instagram to its full potential should be the "core 1-2 punch" that could help Facebook head higher in 2018, Ives said.
Amazon's Whole Foods deal starts to pay off
Amazon's significant investments around fulfillment, Prime, Echo/Alexa and Amazon Web Services could create some "near term pain for long-term gain" for investors, Ives explained.
Amazon in 2018 will be focused on further integrating its $13.7 billion acquisition of Whole Foods Market. As the internet giant optimizes its go-to-market techniques and cross-selling, that should translate to even bigger growth for Amazon's Prime subscriber network.
"With Amazon's underlying goal to increase the average customer purchase/basket size, we believe further integration between Whole Foods inventory (recent price cuts in-line with Amazon's playbook) and the Amazon e-commerce machine is a great 1-2 punch that should drive increased sales/ramp in Prime members for 2018 and is still underappreciated by the Street in our opinion," Ives said.
Amazon's ambitions in pharmacy could also become front and center in 2018. Ives believes an expansion into pharmaceuticals is a "smart strategic move" that will help it "spread its tentacles" across the consumer landscape next year.
Jim Cramer and the AAP team hold positions in Apple, Alphabet and Facebook for their Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL, GOOGL, or FB? Learn more now.
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