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

Published Sun, Dec 25 202210:25 PM EST

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