Proactive Investors - The tech sector is in the early stages of its next growth cycle being led by the artificial intelligence (AI) revolution, according to analysts at Wedbush.
“We continue to strongly believe that with the Fed now coming to the end of its historical rate hike cycle, inflation rapidly cooling, and rate cuts in the foreseeable future the Street is seeing the forest through the trees to identify the tech winners and share gainers in this next 4th Industrial Revolution,” the analysts wrote in a note to clients.
“This speaks to a strong year for tech stocks in 2023 so far that we believe should continue as the risk-on trade gains momentum with investors focused on the AI revolution and the positive ripple impacts for software, consumer digital advertising names, and of course the chip sector with NVIDIA Corporation (NASDAQ:NVD A)leading the way.”
Tech stocks have rallied in 2023, with the tech-laded Nasdaq having gained about 30% in the year-to-date.
The analysts said massive cost-cutting across the tech sector over the last nine months, stable enterprise spending, and a resilient consumer have set the stage for a “1995 moment” because “AI is the most transformative technology we have seen since the Internet started to take shape.”
“While valuations in tech will be front and center, we continue to believe AI is driving the tech sector to a ‘1995 moment’ with a long runway of growth ahead that we have not seen since the 1990s,” they wrote.
They pointed out that while many tech skeptics would point to today as a “1999 moment,” on the verge of the Dot.com bubble and collapse given the significant movement in tech valuations, they disagreed.
“The massive $800 billion AI opportunity (our estimate) is now on the doorstep for the tech sector for the next decade and real monetization of AI is happening much sooner than expected with Nvidia's recent guidance and our channel checks giving further confidence in our AI bullish sector call that kicked off in early January,” they explained.
Wedbush’s analysts also pointed to Microsoft (NASDAQ:MSFT) as a significant beneficiary of the AI arms race.
“We believe that Microsoft is in a unique position to gain share in the cloud market that could expand Redmond's total addressable market around cloud by 35% to 40% over the coming years,” they wrote.
“With Microsoft a clear market leader in the AI race along with Nvidia, this battle will be a long one over the next decade as we expect other technology companies besides Google (NASDAQ:GOOGL), such as Oracle (NYSE:ORCL), Amazon (NASDAQ:AMZN), Salesforce Inc (NYSE:CRM), Palantir (NYSE:PLTR) MongoDB (NASDAQ:MDB), Apple (NASDAQ:AAPL), IBM (NYSE:IBM), Meta Platforms Inc (NASDAQ:META) Snowflake Inc (NYSE:SNOW), C3 Ai Inc (NYSE:AI), and other tech stalwarts along with smaller players in the industry, to collectively spend tens of billions in this AI arms race over the coming years.”