Tech Stocks Bounce Back in the New Year
The tech sector is off to a strong start in 2025, led by Nvidia’s impressive 3.5% gain on Friday. This surge follows a 3% increase the previous day, making up for the 4% dip experienced between Christmas Eve and New Year’s Eve. The broader market saw a sell-off during this period, with Tesla plummeting 13%, while Amazon, Microsoft, and Meta dropped over 4%. Apple, meanwhile, fell 3%.
Nvidia’s Resilience
Despite the December decline, Nvidia shares still ended 2024 with an impressive 150% gain. Wall Street analysts remain bullish on the stock, predicting a rise to around $173 over the next year from its current level of $138. According to Bank of America’s Vivek Arya, the recent sell-off was driven by broader market forces and company-specific issues.
A Rotation in the Market
Arya notes that there has been a rotation of money from semiconductors to software, which is less exposed to US trade restrictions on goods to and from China. Additionally, Nvidia is going through growing pains as it transitions from one generation of product to the next. However, Arya believes these are short-term issues, creating a buying opportunity.
Artificial Intelligence Fuels Growth
Nvidia shares are trading at less than one times the consensus earnings growth for the company this upcoming year, compared to its peers trading at two times their average earnings growth estimates for 2025. This disparity could signal a buying opportunity. The Magnificent Seven tech stocks, including Nvidia, have benefited from investors’ massive bets on artificial intelligence, as well as earnings growth.
Earnings Growth Outperforms
Through roughly three-quarters of reports, the combination of Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia grew earnings year over year by 33% in 2024, compared to just 4.2% growth for the other 493 S&P 500 companies. While skeptics warn of a potential bubble, Wall Street analysts overall remain convinced that AI enthusiasm will continue.
Mixed Performance Among Peers
Tesla rose 1.5% on Friday, while Amazon, Alphabet, and Microsoft edged up around 1%. Meta and Apple traded sideways. As the tech sector continues to evolve, investors will be watching closely to see if this momentum can be sustained.
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