Research Roundup: Top picks in beaten-down infrastructure software sector from a BofA analyst

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Twilio upgraded to buy

BofA Securities analyst Koji Ikeda previewed earnings season for infrastructure software stocks,

“The infrastructure software sector is down 29.3 per cent year-to-date (vs. up 5.3 per cent for NASDAQ) without meaningful downward revisions to revenue and free cash flow forecasts … we generally expect good results from the best-of-breed vendors driven by ongoing demand for core offerings … Many infrastructure software stocks continue to trade at premium valuation multiples relative to broader software leaving less room for ‘good but not great’ results. As such, we think delivering revenue growth acceleration will be the primary catalyst, with better free cash flow generation and margin expansion as supporting factor … We upgrade Twilio (TWLO) from Underperform to Buy as we see positive inflections in its strategic positioning in AI and its fundamentals. We think Twilio will prove to be one of the key infrastructure players for AI-driven voice and messaging uses cases, where scale and reliability are critical. We think its key growth metric, gross profit dollar growth will continue accelerating, as we forecast growth of 10 per cent year-over-year for FY28E, up from 9 per cent for FY26E”

In addition to Twilio (TWLO-N), Mr. Ikeda has “buy” ratings on Amplitude (AMPL-Q), Datadog (DDOG-Q), Dynatrace (DT-N), Frog MongoDB (FROG-Q) and Snowflake (SNOW-N).

Rotate out of energy

Wells Fargo strategist Scott Wren is recommending clients rotate out of energy stocks and into tech, precious metals and copper miners,

“On April 6 we downgraded the energy sector from neutral to unfavourable and upgraded information technology from neutral to favourable. Year-to-date, the energy sector has gained nearly 23 per cent while information technology has performed largely in line with the SPX. What’s more, the Tech sector P/E ratio fell to a level more in line with that of the SPX and the consensus earnings growth estimate for Tech is nearly double that of the SPX … Our analysis suggests there is a similar opportunity within the commodities asset class. The energy-related components of the commodities sector outperformed into early April as the price of oil surged during the opening weeks of the Iran war. And while the price of oil rose, the price of precious metals … and … copper dropped … w believe and opportunity exists to reallocate from energy related commodities into our favoured precious metals segment of commodities”

Rotate out of energy part II

RBC Capital Markets summarized their findings from a quarterly survey of Canadian equity analysts,

“Overall views: Our Canadian analysts have a constructive view on performance in an Iran de-escalation scenario, the domestic policy backdrop, demand and, to a lesser degree, valuations. Our Canadian analysts tilted negative on the performance outlook in a prolonged war and regarding knock-on, ongoing, lingering and ripple effects of the war. Performance outlooks by Canadian sector: In an Iran de-escalation scenario, performance outlooks are most constructive for Industrials and Consumer Discretionary. Views are also positive for Communication Services, Health Care, Tech and Real Estate. They are neutral for Energy and Consumer Staples. In a prolonged war scenario, outlooks are most constructive for Energy and Consumer Staples, and tilt negative on most other sectors, most notably, Industrials. Valuation views by Canadian sector: Valuation assessments are positive or neutral for most Canadian sectors and tilt most constructive for Tech. Valuation views have a negative tilt for Energy. Demand views by Canadian sector: Views are mostly positive across sectors, with the most constructive tilts in place for Utilities and Energy and a negative assessment for Communication Services. Iran war impacts by Canadian sector: Views are negative across most sectors, with the least constructive views on Real Estate, Tech and Consumer Discretionary. Energy is the only sector with a positive tilt on this question”

This was part of a survey of all analysts worldwide. In my perfect world, they would have tacked on a page with top equity picks but alas, not this time.

Bluesky post of the day

Diversion

“Watch Sony’s AI Robot Compete With—and Beat—Elite Table Tennis Players" - Gizmodo