Topline
Already red-hot technology stocks are in line for a rally to historic levels, Wedbush declared Tuesday, even as a host of firms warn the artificial intelligence-driven gains could be little more than wishful thinking.
Key Facts
The tech sector will soar another 12% to 15% by year’s end, Wedbush analysts led by Dan Ives predicted in a note to clients, explaining the “AI revolution” will further boost investor sentiment as companies report quarterly earnings in coming weeks.
A 15% surge for the Nasdaq Composite would send the tech-heavy index to just shy of its all-time high of 15,971 first achieved in November 2021—culminating in a dramatic 52% rally for the index in 2023.
The most valuable tech giants like Microsoft and Nvidia will continue to be the primary “torch bearers” for the rally, according to Wedbush, as multibillion-dollar projected increases in AI spending across the entire sector should lead to higher earnings expectations.
“A new tech bull market has begun to take shape,” the analysts proclaimed.
Contra
Wedbush’s optimistic prognostication for tech comes amid a growing chorus of analyst concerns about the sector’s soaring valuations. JPMorgan chief global strategist Mislav Matejkaech said tech stocks are “stretched” thin at their current prices in a Monday note, adding “FOMO is in full swing”—and not just for tech. Citing the unfettered AI “euphoria,” Citigroup downgraded its outlook for U.S. stocks Monday, setting a 4,000 price target for the bellwether S&P 500 index, implying 9% downside. “The composition of the S&P 500 is still tech top-heavy and likely to right-size further from here,” Bank of America quantitative analysts led by Ohsung Kwon predicted Tuesday.
Key Background
Tech was among the worst-performing sectors throughout 2022 as the Federal Reserve’s interest rate hikes battered profits for the growth-sensitive bunch. But the November release of Microsoft-backed generative AI chatbot ChatGPT and subsequent AI offerings from top tech names helped spur a massive recovery for the sector, with top names like Apple and Nvidia surging to all-time high share prices in recent weeks. The seven largest American tech companies added some $4.1 trillion in market capitalization during the first half of 2023.
What To Watch For
Alphabet, Apple, Meta and Microsoft will kick off big tech earnings season with reports beginning on July 25.
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