Google and Twitter are primed to rally as economic reopening boosts online ad spending, Bank of America says

• Bank of America expects Google and Twitter to outperform tech peers in the first half of 2021 as online advertising bounces back.
• The bank's strategists lifted their forecasts for ad spending on Wednesday. Global spending will grow 22% in 2021 to $411 billion, while US spending will rise 23% to $179 billion, the team said in a note to clients.
• Google and Twitter "have the most room left to benefit" from a cyclical recovery and revitalized ad spending on social platforms, they added.
• TikTok's meteoric rise and regulatory risks could derail the two stocks' strong momentum, according to the note.
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Some tech giants will rally further through the global economic recovery as ad spending sharply rebounds, according to Bank of America.

Economic recovery is largely expected to leave tech giants on the sideline while cyclical and value stocks outperform. Yet Bank of America sees Google and Twitter as top beneficiaries of increased ad spending, and is forecasting strong gains for the names through the first half of 2021.

The bank's strategists expect the recent acceleration in online ad growth to pick up further in 2021 as economies reopen. Global online ad spending will climb 22% in 2021 to $411 billion, and US online ad revenues will rise 23% to $179 billion, according to a Wednesday note.

"With a big boost for app and direct-response advertising spend for social stocks in 2020, we think Google and Twitter have the most room left to benefit from a cyclical recovery next year," the team led by Justin Post said.

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The firm holds a "buy" rating for Google stock with a price target of $2,000. The target implies a 14% rally over the next 12 months. Twitter also boasts a "buy" rating, with a price target of $58 projecting a 7% climb.

In the mega-cap space, the team expects Google to outperform Facebook given easier year-over-year comparisons to beat in search traffic. Rebounding strength across its cloud and YouTube businesses will further fuel outperformance.

Twitter leads the mid-cap group, largely due to having the most negative sentiment compared to its peers. While Snap and Pinterest trade at an average multiple of 16 times projected 2022 revenue, Twitter's multiple sits at just 7. A return of branded advertising spending and live events will also benefit the social media giant, Bank of America said.

Other secular trends, including the continued rollout of 5G and the rapid shift to online retail spending, stand to lift both names. Still, various risks threaten the bullish outlook. Tougher regulation of the tech industry could cut into the companies' expansion, as could TikTok's meteoric ad growth.

More difficult comps in the second half of 2021 raise the bar further into the forecasted reopening, the strategists added.

Google-parent Alphabet traded at $1,750.02 per share as of 11:45 a.m. ET Thursday, up 31% year-to-date.

Twitter traded at $54.46, up 70% year-to-date.

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