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.”