Big Tech's record rally is being boosted by coronavirus — and growth rates are just getting started, BofA investment banker says

• Rick Sherlund, Bank of America Merrill Lynch vice chairman of technology investment banking, said COVID-19 has accelerated a digital revolution and has boosted big tech.
• He added that software is up 29% in the S&P 500 and is "not only eating the world" but "leading the market."
• Sherlund said he does not think big tech's record rally should be compared to the dot-com bubble of the late 1990s.

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Rick Sherlund, Bank of America Merrill Lynch vice chairman of technology investment banking, told CNBC on Tuesday that the coronavirus has accelerated the "urgency" behind digital transformation, and that has contributed to the skyrocketing growth of big tech.

Sherlund said that tech, particularly software, is the "relatively bright spot" in the global economy. Tech in the S&P 500 index is up 22%, and software is up 29%, he noted. He compared this to the broader S&P 500, which he said is up only 2% year-to-date, adding the "COVID impact has been very uneven." Software has "been a big benefit during this period," he said.

Sherlund also said that software is "becoming the business," as more and more people are using it to learn, shop, work, and socialize at home. While it used to be used for back-office processes, it's now at the forefront of people's daily lives, and this is just the beginning of software's growth. "Software is not only eating the world, it's leading the market," Sherlund said.

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He added that this record tech rally is not a repeat of the late-'90s dot-com bubble. "We have good business models now. These companies, even if they're growing fast and unprofitable, we look at unit economics … I took a look recently at a number of dot-com names, where they were valued back then and where they are today. We're nowhere near those kinds of valuation levels," he said.

Sherlund said he's "not terribly concerned" about valuation levels of big tech stocks, and that the growth rates are just getting started in the tech sector. "Digital transformation is really disrupting markets and we're at the very early stages of where this is going to take us," he said.