Tech Stocks Poised for Growth Amid Rate Cuts and AI Advancements

Tech stocks to move higher on rate cutting cycle, AI boost says Wedbush By Investing.com

The Federal Reserve is set to begin its interest rate-cutting cycle this week after years of hikes and restrictive policies. Ahead of the much-anticipated pivot, tech investors are closely watching for signs that the "risk on" trade might return, following a weak and nervous performance in the tech sector since late July. But despite the recent volatility, Wedbush analysts believe that overall tech earnings have been solid. Recent earnings results of Oracle Corporation (NYSE:ORCL), for example, have provided further validation that the AI revolution is transitioning into the anticipated software and use-case phase, the investment firm highlights. Wedbush said its recent time in Asia has strengthened its confidence that the tech supply chain is preparing for significant growth. Its analysts estimate that around $1 trillion in AI-related capital expenditure is on the horizon over the next few years, which will fuel unprecedented expansion in the tech sector. "In a nutshell, we believe the stage is set for tech stocks to move higher into year-end and 2025 in our opinion as the Fed and Powell kick off its rate-cutting cycle this week, macro soft landing remains the path, and tech spending on AI remains a generational spending cycle just starting to hit the shores of the tech sector," analysts wrote in a Sunday note. Wedbush emphasizes that Nvidia (NASDAQ:NVDA) and its CEO Jensen Huang remain central to the AI revolution, but also notes that the broader implications for the tech sector are vast. The analysts describe it as a "4th Industrial Revolution" spreading across semiconductors, software, infrastructure, the Internet, and smartphones over the next 12 to 18 months. "We continue to estimate for every $1 spent on an Nvidia GPU chip there is a $8-$10 multiplier across the tech sector which speaks to our firmly bullish view of tech stocks over the next year," they continued. Although Nvidia and Microsoft (NASDAQ:MSFT) are seen as the key players driving AI, Wedbush points out that other tech giants are now joining the AI wave. These include Oracle (NYSE:ORCL), ServiceNow (NYSE:NOW), Palantir (NYSE:PLTR), Salesforce (NYSE:CRM), Dell (NYSE:DELL), IBM (NYSE:IBM), Apple (NASDAQ:AAPL), AMD (NASDAQ:AMD), and others. Investors have recently been raising concerns over the delayed impact of AI-driven investments on growth and margins. However, Wedbush argues that this resembles the early stages of the 1995 Internet boom, not a 1999 tech bubble. "We focus with eyes on the prize: the AI buildout and the tech winners of this 4th Industrial Revolution front and center," the note states. "As more tech vendors show the monetization piece of AI this will ultimately drive the next leg of the tech bull market in a very stable overall IT spending environment that is a bullish backdrop for tech stocks in our opinion."

Potential Fed cuts provide bullish backdrop for AI stocks: Wedbush

An array of tech stocks appear likely to benefit, especially the hottest names in artificial intelligence, such as Nvidia (NASDAQ:NVDA), if the Federal Reserve System cuts interest rates this week, according to an investor note by Wedbush. "In a nutshell we believe the stage is set for tech stocks to move higher into year-end and 2025 in our opinion as the Fed and Powell kick off its rate cutting cycle this week, macro soft landing remains the path, and tech spending on AI remains a generational spending cycle just starting to hit the shores of the tech sector," said Wedbush analysts, led by Daniel Ives. A majority of traders expects the Fed to cut rates by 50 basis points. "However, a rate cut of more than 25bps seems unlikely -- while the Fed is late in cutting rates, a larger move might be taken as a sign of panic," said UBS analyst Paul Donovan. "Higher frequency cuts rather than larger cuts seem most likely." In addition to Nvidia, other tech names linked to AI that should benefit from a rate cut include, Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), Palantir (NYSE:PLTR), Salesforce (CRM), Dell (NYSE:DELL), IBM (NYSE:IBM), Apple (NASDAQ:AAPL), AMD (AMD) and ServiceNow (NOW), Ives noted. Capital expenditures on AI are expected to reach a towering $1T over the next few years.

Nvidia, Microsoft, and other tech stocks could rally after the Fed cuts interest rates

With the Federal Reserve set to begin cutting interest rates this week, analysts believe tech stocks could get a big boost. The start of a rate cutting cycle will be a positive signal for markets, which have remained relatively muted since the market meltdown in August sent the "fear index" soaring. This, paired with the boom in tech spending thanks to artificial intelligence, will create ideal conditions for tech stocks, researchers at Wedbush, led by Dan Ives, said in a note. "In a nutshell we believe the stage is set for tech stocks to move higher into yearend and 2025," Ives said. Interest rates have remained at 23-year-highs of 5.25% to 5.50% since July 2023. At its Sept. 17-18 meeting, the Federal Open Market Committee is widely expected to carry out a 25-basis-point cut. A soft landing for the U.S. economy and a "generational spending cycle" on AI will create an ideal growth environment for the sector, Ives said. The investment firm estimates for every $1 spent on an Nvidia (NVDA) GPU chip, there is a $8-$10 multiplier across the tech sector. Ives said the tech supply chain appears to be gearing up for an "unprecedented period of growth" driven by an estimated $1 trillion of AI spending over the next few years. This activity will spur other tech players -- from semiconductor and software, to infrastructure, Internet, and smartphones -- to get in on the AI action over the next 12 to 18 months, according to Ives. "While Nvidia and Microsoft (MSFT) are the core drivers of AI now we are seeing many other tech stalwarts join the AI Party including Oracle (ORCL), ServiceNow (NOW), Palantir (PLTR), Salesforce (CRM), Dell (DELL), IBM (IBM), Apple (AAPL), AMD (AMD) among others," he said. Despite some market concern around AI spending, strategists say Nvidia earnings are giving a green light to Big Tech to continue this spending spree. The chipmaker reported record second-quarter revenue of $30 billion for this fiscal year -- up 122% from a year ago. Analysts had expected revenue of $28.7 billion for the second quarter -- more than double its previous year revenue of $13.5 billion, according to FactSet (FDS). Nvidia -- whose chips are used to train generative artificial intelligence models -- has become a barometer for the health of AI demand and excitement, given its outsized role in the sector. Its stock has also become a market-driving force, with its stock up 147% so far this year and a $2.92 trillion market capitalization. Shares have fallen more than 4% in the past month, however, as markets brace for the Fed's decision.

Worried About Staggering Tech Valuation? Analyst Says These Stocks Are Poised To Go Higher As Fed Kicks Off 'Rate-Cutting Cycle' This Week - Apple (NASDAQ:AAPL), Advanced Micro Devices (NASDAQ:AMD)

"We believe the stage is set for tech stocks to move higher into yearend and 2025," he says. Tech's extended bull run has more legs to play out, with a key imminent catalyst potentially giving a thrust to the stocks belonging to the sector, according to an analyst at Wedbush. Fed To Kickstart Risk-On Trade: The Federal Reserve will finally begin to cut interest rates in the current monetary policy cycle. The likely cut will come two-and-a-half years after the first rate hike implemented to curb inflationary pressure that reared its ugly head following the stimulatory measures implemented to offset the impact of the COVID-19 pandemic. Wedbush's Daniel Ives said tech investors now look forward to risk-on trade after some nervousness seen in late July. "Despite all the noise and white knuckles, overall tech earnings have been generally robust with Oracle Corp. ORCL, the latest tech stalwart to give more validation that the AI Revolution is starting to quickly move towards the much-awaited software and use case part of the cycle," he said. See Also: Best Tech Stocks Right Now Growth Sweet-spot: The tech supply chain is gearing up for an "unprecedented" period of growth, driven by the massive artificial intelligence capex spending over the next few years, Ives said, basing his view on Asia checks. The AI revolution, which kickstarted with Nvidia Corp. NVDA, now has ramifications for the broader tech sector, the analyst said, calling the technology the fourth industrial revolution. This revolution is happening across semiconductor, software, infrastructure, internet and smartphones and will likely extend over the next 12 to 18 months, he said. Nvidia and Microsoft Corp. MSFT are core drivers of AI, and now other tech stocks such as Oracle, ServiceNow, Inc. NOW, Palantir Technologies Inc. PLTR, Salesforce, Inc. CRM, Dell Technologies, Inc. DELL, International Business Machines Corp. IBM, Apple, Inc. AAPL and Advanced Micro Devices, Inc. AMD are joining the party as well, he said. "We believe the stage is set for tech stocks to move higher into yearend and 2025 in our opinion as the Fed and Powell kick off its rate-cutting cycle this week, macro soft landing remains the path, and tech spending on AI remains a generational spending cycle just starting to hit the shores of the tech sector," Ives said. Why It's Important: The Invesco QQQ Trust QQQ, an exchange-traded fund that tracks the Nasdaq 100 Index, has been on an extended uptrend since the start of 2023. This is despite the hiccup seen since mid-July due to concerns about the lavish capex plans of AI companies. Source: Benzinga Pro data. The extended run-up introduces caution among investors, given valuations have become stretched. Analysts also see the laggards and leaders switching places when the Fed begins to cut rates, with underperforming interest-rate sensitive small-cap stocks seen as the biggest beneficiaries. Tech bulls such as Ives see the broadening of the rally rather than one gaining at the expense of the other, given the massive potential AI offers. The QQQ settled Friday's session up 0.45% at $475.34, according to Benzinga Pro data. The Technology Select Sector SPDR Fund XLK gained 0.50% to $220.44 and is up about 15% for the year. Read Next: Peter Schiff Warns Against Irrational Exuberance Toward Tech Stocks, Cryptos As Economist Cites Intel's Fall From Grace Photo by Phongphan on Shutterstock Market News and Data brought to you by Benzinga APIs