Tech stocks will continue to dominate in 2025: CIBC

Is the trend really your friend?

CIBC World Markets analyst Todd Coupland says yes, at least for another year.

In a research report to clients January 6, Coupland said he says the two year boom in tech stocks will continue into a third year, as it has numerous times in the past.

“The question at the top of many investors’ minds is whether the double-digit technology returns experienced in 2023 and 2024 will repeat in 2025,” the analyst wrote. “Using history as a guide, our view is that it will, given 2025 would be the third of what are typically three-year double-digit annual returns post bubble and bust. Recall that after both the bursting of the dotcom bubble and the Great Financial Crisis, the initial recovery spurts began in 2002 and 2008, respectively, each lasting three years. It appears that the boom/bust cycle is repeating following the post-pandemic trough we experienced in late 2022, with positive technology returns in 2023 and 2024. The setup for gains in 2025 includes a decent economy, falling interest rates and gains among those businesses that optimized their profitable growth, including by leveraging the growth opportunities and operational benefits provided by emerging GEN-AI tools.”

Coupland likes the aforementioned BB and LSPD, as well as Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP) and Rubrik (Rubrik Stock Quote, Chart, News, Analysts, Financials NYSE:RBRK).

“Shopify is our top pick because we expect an acceleration in its durable revenue growth and FCF in 2025,” Coupland argued. “Higher growth should come from a TAM [total addressable market] expansion beyond SMBs [small and mid-sized business], to enterprises, B2B [business-to-business], in-person retail POS [point-of-sales], and International. Market growth and market share gains are yielding recurring revenue growth and rising product attach rates. Shopify merchants generate GMV [gross merchandise volume] growth that outpaces the market by at least 2x. This has led to Shopify’s consistently higher growth and market leadership. Early feedback on Shopify’s GEN-AI tools is that they enhance its competitive position and could start to contribute more to growth and operating efficiency. Finally, Shopify’s Rule of X, our valuation metric that favours growth at 2 times FCF margins, ranks Shopify in the top 10 of all cloud companies. We expect this rank could improve further in 2025.”

The analyst said he likes cloud player Rubrik because of its ownership of the storage and backup segment of an increasingly data hungry tech space.