What is phygital tech?
Over the next five years, Bank of America is predicting a revolutionary shift in the human-computer user interface. The firm is projecting a $700 billion boom in technology that will help blur the lines between the digital and physical worlds, an investing theme Bank of America calls “phygital” tech. Phygital tech includes fields such as virtual and augmented reality, voice and speech recognition and gesture, touch and haptic technologies. Ultimately, this technology could change the way the entire business world designs, manufactures and sells its products. Here are eight phygital tech stocks to buy from Bank of America.
Apple (ticker: AAPL)
The Apple iPhone helped introduce touchscreen technology, tech that is now considered to be part of the standard UI for most personal devices. Apple has also helped introduce and mainstream phygital tech such as eye tracking, facial recognition technology, speech recognition and augmented reality. Despite its $1.2 trillion market cap and slowing iPhone device sales, Apple shares are up another 71.6% year-to-date. Analyst Wamsi Mohan says the stock remains inexpensive, and Apple’s revenue growth is getting more consistent. Bank of America has a “buy” rating and $270 price target for AAPL stock.
Microsoft Corp. (MSFT)
Microsoft’s HoloLens are mixed reality smart glasses designed to help professionals use intelligent apps to solve business problems. By 2025, the expensive, bulky current HoloLens models will likely look as ridiculous as 1990s cell phones. HoloLens is just one example of how Microsoft is attempting to bridge the physical and digital worlds. Analyst Kash Rangan says Microsoft landing the Department of Defense’s coveted $10 billion Jedi Cloud contract is another sign that Azure is a solid long-term growth opportunity for investors. Bank of America has a “buy” rating and $162 price target for MSFT stock.
Alphabet (GOOG, GOOGL)
In May 2019, Alphabet announced the $999 Google Glass Enterprise Edition 2. The newest Google Glass augmented reality headset is currently marketed as a professional tool for surgeons, factory workers and other professionals who may need hands-free computing or troubleshooting assistance. Google has also launched ARCore developer software for AR apps. Analyst Justin Post says regulatory scrutiny and margin compression are near-term headwinds, but Alphabet is well-positioned in high-growth fields such as digital advertising, streaming video and mobile search. Bank of America has a “buy” rating and $1,450 price target for GOOGL stock.
IBM Corp. (IBM)
IBM Watson is already powering VR video games, and IBM Immersive Data enables customers to walk around and observe complex data sets from different angles. IBM has been a laggard among big tech stocks in recent years due to its legacy businesses. Mohan says IBM is a defensive play among the tech giants given its 15.4 earnings multiple, its 4.8% dividend, its strong balance sheet, its exposure to recurring revenue and its potential to gain long-term IT spending share. Bank of America has a “buy” rating and $170 price target for IBM stock.
Intel Corp. (INTC)
Intel chips power connected devices, but Intel’s phygital tech goes far beyond chips. Intel RealSense is the company’s suite of depth-tracking technologies that allow machines to sense three dimensional objects. Earlier this year, Intel unveiled the Depth Camera SR305, which is optimized for face analytics and tracking, scene segmentation, scanning and mapping, AR and hand and finger tracking. Analyst Vivek Arya says recent chip capacity shortages are only temporary, and Intel trades at a more than 30% discount to its semiconductor peers. Bank of America has a “buy” rating and $70 price target for INTC stock.
Bank of America says digital assistants like Amazon Alexa will likely see increasing integration into automobiles, entertainment systems and other areas. In addition, digital assistants will likely see more business applications as well. Amazon’s smart speakers are collecting troves of human voice data that can be used to improve speech recognition. Post says Amazon investors are facing potential antitrust regulation, and tax legislation may be headwinds for Amazon shares in 2020. However, the company is well-positioned in too many high-growth tech fields to ignore. Bank of America has a “buy” rating and $2,160 price target for AMZN stock.
NXP Semiconductors (NXPI)
NXP is a leading global semiconductor company focusing on auto, identification, wireless and industrial markets. Arya says NXP has key products in several secular growth areas, including advanced driver-assistance systems and battery management systems for electric vehicles. In addition, he says NXP’s Dutch domicile gives the company an advantage over U.S. competitors in dealing with Chinese microcontroller vendors. Arya says NXP’s connectivity and processing solutions are much more complete following its recent acquisition of Marvell Technology Group (MRVL) WiFi assets. Bank of America has a “buy” rating and $140 price target for NXPI stock.
Nvidia Corp. (NVDA)
Nvidia produces high-end processors for gaming PCs, workstations, autonomous vehicles, drones, robots and other applications. Nvidia shares took a hit in the second half of 2018 after demand for cryptocurrency mining processors plummeted. However, the stock has bounced back in 2019, and Arya says Nvidia is a top sector stock pick heading into 2020. Arya says Nvidia should lead its peer group with 20% revenue growth next year thanks to demand from artificial intelligence, high-performance computing, gaming, autos and movie rendering. Bank of America has a “buy” rating and $275 price target for NVDA stock.
Top stocks for a 'phygital' world:
Apple (AAPL)Microsoft Corp. (MSFT)Alphabet (GOOG, GOOGL)IBM Corp. (IBM)Intel Corp. (INTC)Amazon.com (AMZN)NXP Semiconductors (NXPI)Nvidia Corp. (NVDA)