Tech Stocks Poised for Another Breakout Year
The AI Boom Continues to Drive Growth
Wedbush analyst Dan Ives has been a vocal advocate for the artificial-intelligence (AI) revolution, and his predictions have largely come to pass. From the debut of ChatGPT to the current AI arms race, Ives has consistently called the shots. His forecast of a 20% gain in tech stocks for 2023 was spot on, and his prediction of a 25% jump in 2024 also proved accurate.
Nvidia Leads the Charge
Nvidia has been a key beneficiary of the AI boom, with its components in high demand from cloud infrastructure companies like Microsoft, Alphabet, and Oracle. The chipmaker’s rapid growth has helped drive the tech-heavy Nasdaq index to new heights.
A Multiyear Rally in the Making
Ives believes the AI boom will fuel a multiyear rally in the stock market, similar to the dot-com boom of the 1990s. While some have expressed concerns about an AI bubble forming, the signs point to continued growth. Revenue and profit are expected to soar, driven by rapid growth in AI-related stocks.
Macro Trends Support Tech Stocks
Larger macro trends are also working in favor of tech stocks. The departure of Lina Khan as head of the Federal Trade Commission is expected to lead to a more business-friendly regulatory environment. Additionally, investors are anticipating support from the new administration for AI initiatives, which could drive tech stocks higher.
Cybersecurity Spending to Remain Strong
The race to achieve artificial generative intelligence is well underway, and companies like OpenAI are leading the charge. As a result, spending on cybersecurity is likely to remain strong, supporting tech stocks.
Valuation Concerns
However, the biggest risk factor facing tech stocks is valuation. The Nasdaq has gained over 50% in the past two years, making it one of the most expensive markets since the dot-com bubble. The Invesco QQQ Trust, which tracks the Nasdaq 100, now trades at a price-to-earnings ratio of 35.
A Tactical Approach to Investing
Rather than piling into tech stocks, a better strategy would be to invest tactfully in the industry. Consider waiting for pullbacks in specific stocks after doing due diligence, or buy ETFs like the Invesco QQQ Trust to diversify risk. Keeping some dry powder on hand for future market movements will also pay off.
Opportunities Ahead
While 2025 is likely to be a volatile year for investors, there will be opportunities to capitalize on sell-offs. The AI boom still has the potential to drive the tech sector higher over the next few years, but investors should be prepared for pullbacks along the way.
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