Investors in the tech sector may feel hesitant to make further investments, given the significant gains already seen this year and the possibility of rising interest rates. However, analysts at Wedbush are optimistic about the future of tech stocks, particularly in relation to the ongoing rally driven by artificial intelligence (AI).
While the S&P 500 has experienced a solid 16% increase this year, the tech-heavy Nasdaq index has soared even higher, registering an impressive 31% gain. This remarkable performance reflects the enthusiasm among investors for AI and its impact on the tech sector. The crucial question remains: can this upward trend be sustained?
One factor influencing the uncertain outlook for tech stocks is the Federal Reserve’s stance on interest rates. Over the past 18 months, the Fed has aggressively increased rates to counter decades-high inflation. Although it is widely expected that the Fed will maintain interest rates at current levels during their upcoming meeting, the situation beyond November remains unpredictable. There is a possibility of another rate hike, as well as speculation regarding future reductions in borrowing costs.
Tech investors face a challenge due to the effects of Fed policy on bond yields. The yield on the benchmark 10-year U.S. Treasury stands above 4%, its highest level since the financial crisis of 2008-2009. This surge in returns from risk-free government bonds diminishes the appeal of riskier investments like tech stocks, which subsequently puts downward pressure on their prices.
Nonetheless, analysts led by Dan Ives at Wedbush, who are known for their bullish stance on tech stocks, remain resolute in their opinion.
“In spite of the stubbornly high 10-year level surpassing 4%, can tech stocks still rise?” wrote the Wedbush team in a note on Tuesday. “We firmly believe that we are entering a new tech bull market and anticipate continued growth until the end of the year. The market’s near-term fixation on the Fed may be misplaced, as we foresee rate cuts coming in 2024.”
In conclusion, despite potential challenges posed by interest rates and bond yields, Wedbush analysts are confident in the future prospects of the tech sector. The rally driven by AI shows no signs of slowing down, and with anticipated rate cuts down the line, tech stocks are poised for further gains into 2024.
The Growing Influence of AI in the Tech Sector
The year 2023 has seen a surge in optimism surrounding the transformative power of AI, according to industry experts. This growing confidence has been a key driver behind the upward trajectory of the tech sector. Analysts believe that we are now entering a new phase of the AI revolution.
Wedbush, a prominent financial services firm, predicts that the tech industry will experience a wave of unprecedented growth driven by AI over the next 12-18 months. In particular, large hyperscale players such as Microsoft, Google, and Amazon are expected to benefit significantly from this surge in enterprise spending.
Additionally, Wedbush highlights a positive outlook for software, chips, and digital media sectors in the coming year, with consumer internet set to be heavily impacted by the AI cycle. Among the preferred tech investments identified by Wedbush are Amazon, Alphabet (formerly Google’s parent company), and Meta Platforms (formerly Facebook), all of which have been allocated Outperform ratings and bullish price targets. Wedbush projects Amazon’s stock to rise to $180 per share, Alphabet’s to reach $160 per share, and Meta’s to advance to $350 per share.
Furthermore, Wedbush maintains an optimistic view on other stocks poised to benefit from the AI revolution. For instance, it upholds an Outperform rating on Nvidia, a leading chip maker with significant exposure to AI technology. The firm believes Nvidia’s stock has the potential to climb from $440 to $600 per share. Additionally, Wedbush predicts that tech giant Microsoft, a major player in cloud services, will rally to $400 per share from its current price of $329.
As the noise surrounding the Federal Reserve decision and interest rates reaches its peak this week, Wedbush’s unwavering confidence in the potential of technology stocks may provide investors with additional reassurance and help maintain a sense of calm in the market.
