He hit No. 1 on Institutional Investor’s all-star analyst list for software 17 times in a row.
Now as an investment banker, Rick Sherlund is a tech power player who believes the group’s record run is in the early innings.
During Tuesday’s exclusive interview on CNBC”s “Trading Nation,” he delivered a bullish case for tech, emphasizing demand for cutting-edge software as the U.S. battles the fallout from the coronavirus pandemic.
“Software is not only eating the world, it’s leading the market higher,” said the Bank of America Merrill Lynch vice chairman of technology investment banking. “Covid has accelerated the momentum and the urgency behind digital transformation.”
Big Tech has been crushing records on Wall Street. On Tuesday, the tech-heavy Nasdaq closed at its 30th all-time high so far this year. It’s now up almost 22% in 2020, while the broader S&P 500 has risen 2%.
Plus, the Nasdaq has soared 65% since the March 23 low.
“The sector offers phenomenal growth, and right now, the Street is valuing that growth because you can’t find growth elsewhere,” Sherlund said.
He suggests the record run is justified based on long-term potential.
“Software used to be the tail of the dog, and now it’s become the head of the dog,” he said. “People use this to not only work at home, but shop at home, to learn at home, to play, to entertain at home [and] to socialize. So, software is really becoming the business.”
He also downplays comparisons with the 2000 tech bubble.
“We are nowhere near those kinds of levels, and we have good business models now,” said Sherlund. “I took a look recently at a number of dot-com names — where they were valued back then and where they are today. We are nowhere near those kinds of valuation levels.”
However, Sherlund acknowledges the rally could see some temporary burnout due to the nature of the economic recovery.
“It’s likely to be led by the cyclical sectors that have lagged behind, and that’s going to require a vaccine,” he added. “But the growth rates that we see in the sector are just getting started.”
According to Sherlund, the softness should be temporary, and tech IPOs will heat up in 2021.
“We are seeing a new generation of technology emerging over the horizon, a new generation of visionary leaders. It’s well funded and guided by experienced VC board members.” said Sherlund. “There’s an awful lot to be done in the space.”
He expects innovation to overshadow risks including the presidential election and U.S.-China trade tensions.
“Companies are probably going to go out in an earlier stage,” Sherlund said. “I have companies now that are doing about $100 million [in revenues] saying ‘can we hit the window next year?'”