How FAANGs Could Benefit From Chinese Regulatory Scrutiny Of Domestic Tech Stocks

Chinese regulators have started to tighten the leash on high-flying Chinese tech stalwarts such as Tencent Holdings Limited TCEHY, Alibaba Group Holding Limited BABA, Baidu, Inc. BIDU and JD.com, Inc. JD.

An analyst at Wedbush sees this as presenting an opportunity for their U.S. peers, especially the FAANG stocks.

Hopes For Chinese Big Tech Names Evaporating: At the start of the year, Chinese tech giants were positioned to gain more investor mind share due to the complex global backdrop, analyst Daniel Ives said.

With the recent DiDi Global Inc. DIDI IPO fiasco and massive regulatory scrutiny by the communist regime in Beijing, a shadow has ben cast over the Chinese tech stocks in 2021, the analyst said.

The underperformance of Chinese tech stocks has to do with the possibility of more regulation in China around the corner, he said.

The U.S.-China cold tech war remains a lingering overhang on Chinese tech stocks, Ives said.

So far, it looks like the Biden administration is taking a much firmer stance on Beijing, tech companies/IP and the chip industry standoff than the Street was anticipating heading into this January, the analyst said.

The recent cyberattacks that appear to be out of China have exacerbated the growing tensions, he said. 

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The Setup For US Tech Names: These dynamics bode well for U.S. tech stocks, Ives said.

Rotation away from Chinese tech stocks and into U.S. tech creates a "nirvana setup" for FAANG names and the tech sector as a whole over the next six to nine months, the analyst said. 

FAANGs is the moniker given to big U.S. tech giants Facebook, Inc. FB, Amazon.com, Inc. AMZN, Apple Inc. AAPL, Netflix, Inc. NFLX and Alphabet Inc. GOOGL.

"Our bullish view is US tech stocks will be up another 10%+ into the rest of this year with our NASDAQ 16K year-end target unchanged," he said. 

The tech bull cycle will continue its upward move in the second-half of 2021 and 2022, given the scarcity of growth names, Ives said. 

Heading into second-half and with the imminent June quarter earnings season, Wedbush said it prefers owning secular winners in FAANG, cloud, cybersecurity and 5G.

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