What's next after a brutal year for tech? Market watchers share their views — and top stock picks - CNBC

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If you invested in tech stocks in 2022, chances are you're sitting on a loss right now. The tech-heavy Nasdaq Composite is down more than 30% this year. That's worse than the S & P 500 or the Dow Jones Industrial Average , which have lost about 20% and 10% of their market values, respectively, in the same period. Even Big Tech names, such as Apple and Alphabet — long considered safe havens of sorts for their relatively more resilient balance sheets and sector dominance — haven't been spared. As they head into 2023, investors could be forgiven for thinking that the worst of the tech rout is over. But some market watchers believe there's more pain to come, with a full recovery likely to take years. But that doesn't mean investors have to avoid the sector altogether, according to several Wall Street pros. Instead, the common refrain is for investors to be selective. Big Tech is 'not dead' Michael Yoshikami, founder and CEO of Destination Wealth Management, said Big Tech is "not dead," though it will take time to recover. "If you're a long-term investor, I think you can kind of hold yourself through this difficult time and reposition to the names that are going to be the ones that are established and will move forward. It sounds very Warren Buffett-ish and that's exactly how I'm looking at this in terms of playing the tech sector right now," he told CNBC's " Street Signs Asia " on Tuesday. "This is not going to be an earth-shaking announcement to people, but companies like Amazon , Apple and Alphabet , these are names that are going to really get through this difficult moment that we are currently facing with this interest rate transition," he added. Goldman Sachs and Citi also see pockets of opportunities within Big Tech, with both naming Amazon and Meta Platforms as their top picks for 2023. "We see the most compelling risk/reward in the group among a collection of large-cap companies that have many of the same narratives in common," Goldman said in a Dec. 13 note. "Those narratives include well-established and scaled end-market positioning, the ability to manage for improved margin trajectory in 2023 and beyond, as well as a 'wall of worry' that has become more pronounced in the past six months," he added. Meanwhile, Citi analyst Ygal Arounian wrote in a Dec. 12 note that the "long-term secular advantages outweigh those in the short term." Be selective BlackRock , too, is urging investors to be selective. The world's largest asset manager said tech staples are likely to stand out from the pack next year. "Tech is not a monolith. We believe cybersecurity and robotics have the potential to buck the economic cycle given cybersecurity has moved from niche to necessity, and robots are mission-critical in fighting supply chain challenges, labor shortages and inflation," Jay Jacobs, U.S. head of thematics and active equity exchange-traded funds at BlackRock, wrote in the firm's "2023 Thematic Outlook" note. BlackRock isn't the only one bullish on cybersecurity stocks. Top tech investor Paul Meeks is also a fan. "I continue to like cybersecurity, which will grow through any type of recession. There is a company called Palo Alto Networks . I still think the cloud has a lot of legs, not just in the US, but also abroad," Meeks, a portfolio manager at Independent Solutions Wealth Management, told CNBC in an interview last month. Wedbush analyst Dan Ives, a longtime fan of the cybersecurity sector, wrote in a Dec. 18 note that spending on cybersecurity will be a "pillar of strength" for the tech sector in 2023. His top picks include Palo Alto, Zscaler and Tenable Holdings . He said the set-up for tech in 2023 is "net bullish" despite challenging macro conditions, with tech stocks the most under-owned since 2009 and with "massive amounts of bad news" already priced in. "We believe overall the tech sector will be up roughly 20% in 2023 from current levels with Big Tech, software, and semis leading the charge despite the macro/Fed wild cards," he added. But some market watchers remain cautious. "Overall, we remain neutral on tech entering 2023, and recommend a market weight," Bernstein's analysts, led by Toni Sacconaghi, wrote in a Dec. 19 note. He noted that the sector is not as "inexpensive as its pullback might suggest" and there are "still high levels" of unprofitable tech stocks. The economic backdrop will be key in determining tech positioning in 2023, he said, noting that tech has historically underperformed during periods of slowdown and recession while outperforming strongly in periods of recovery and expansion. "Accordingly, if the economy does ultimately have a soft landing in 2023, tech likely offers strong potential for upside," he added. A new approach? Others are advocating a different approach to viewing tech. The sector has traditionally been viewed as a growth sector, but some analysts say tech stocks are now value stocks instead. Deutsche Bank analyst Galina Pozdnyakova said new macroeconomic conditions have yanked the "growth" label away from technology stocks. "Yet reports of their deaths are greatly exaggerated. In fact, many technology companies generate considerable cash and may move towards being considered 'value' investments. Inevitably, something will rise and take their place as 'growth' stocks. But instead of belonging to a specific sector, such companies will need to have a set of characteristics that align with the new macro backdrop," she said. The bank identified several new growth leaders, including firms that are involved in efficiency-improving technologies that boost productivity. These firms can surpass consumer-focused tech that dominated much of the past decade, according to Pozdnyakova. BlackRock shares that view. "We believe investors may not be well-served by simply 'buying growth' or 'buying tech.' While more attractive valuations may compel investors to revisit growth stocks in 2023, investors may want to structure their portfolio allocations with greater precision," Jacobs said. "Attractive relative valuations could be capitalized on, with opportunities driven by fiscal spending, near-term medical innovation and counter-cyclical technology … Investors should consider getting choosey again … Owning a targeted basket of securities that are poised to benefit from the emergence of a theme, regardless of sector or geography, can solve this challenge and allow investors to seek outperformance," he added. — CNBC's Michael Bloom and Carmen Reinicke contributed to this report.

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