The tech sector still has legs in the second half, and Deepwater's Gene Munster likes these names

CNBC

2 days ago

Tech stocks helped lift the S & P 500 to a record in the first half, but Deepwater Asset Management's Gene Munster said the artificial intelligence trade still has room to run in 2025 — and he shared a couple of his picks. The broad market index made a stunning turnaround from its April lows to end June with a second-quarter gain of nearly 11%. The information technology sector, which includes Nvidia and Palantir , jumped more than 23% in the quarter, as the return of the AI trade propelled the advance. .GSPT YTD mountain The S & P 500's information technology sector in 2025 "We're in the camp that AI is going to measurably surprise to the upside this year," Munster, Deepwater's managing partner, told CNBC Pro in an interview. "The story for the back half of the year, though, is going to be that we're earlier in the whole shift over than we had realized." "I think people are going to leave this year saying, 'I had no idea this can keep going and going,'" he added. CNBC Pro spoke with Munster about some of his top tech sector plays for the second half of 2025: iPhone maker Apple and cloud storage provider Box . Box Shares of the cloud storage play have gained 5% in 2025, while competitor Dropbox has seen shares tumble nearly 7%. The two companies essentially perform the same utility, but Box is doing a better job of deploying agents, Munster said. These are AI tools designed to perform more complex tasks and to increase productivity. That's especially important for file hosting service companies like Box, as customers look to track down and get insight from large pools of data, he said. BOX YTD mountain Box stock in 2025. Analysts may be undervaluing Box's growth prospects, Munster said, which he said investors may view as "uninspiring." Wall Street forecasts call for Box to grow its business by roughly 9% in 2025 and 7% in 2026, he said, adding that he thinks the firm can expand by closer to 10%. "It's kind of a forgotten story within AI, but in my opinion it's a really powerful story about getting more for small businesses and consumers out of AI," Munster said. "Both Box and Dropbox are trying to get this agent thing right, but we think Box has a better solution than Dropbox." "One of the reasons this gets left behind is, people think [it's] not the sort of exciting AI names like Meta that's growing revenue at 18% or whatever it is. But you want to go to where people are going and not where they're at today," he added. "It hasn't had that inspiring revenue growth to get people excited." Seven of the 10 analysts covering Box rate it a buy or strong buy, according to LSEG. Consensus price targets call for more than 14% upside from current levels. Apple Munster said that Wall Street's iPhone sales expectations are underestimating the potential power of a strong upgrade cycle, which could be a boon for Apple stock. Shares have slipped nearly 15% in 2025. In May, Apple CEO Tim Cook said the company expects tariffs to add $900 million to its costs for the current quarter . The duties are especially troublesome for Apple, which produces the majority of its flagship iPhone in China. AAPL YTD mountain Apple stock in 2025. "Even though there's nothing exciting going on with the iPhone, I think just given this whole upgrade pool that has been forgotten by Wall Street should create a tailwind into the iPhone numbers," Munster said. "I think they hold the size of that upgrade pool from 2021. People are not going anywhere because there's rumors of a Samsung that's got a killer AI feature — it's just not going to happen." Munster also said that Apple can benefit from a low bar in terms of what the company needs to deliver on AI advancements. Wall Street has largely been underwhelmed by Apple's work on AI, including its delayed updates to Siri . "They've told everybody basically not to expect anything until spring or June of next year with the new Siri, so it's not like investors are waiting in three months for some big announcement to come," Munster said. "When you put it all together, they're in a place where they can surprise people on the upside." Analysts are largely bullish on Apple, with 33 out of 50 analysts covering the stock rating it buy or strong buy, per LSEG. Consensus price targets see about 8% upside from current levels.