Tech Stocks Rebound in the New Year
Nvidia Leads the Charge
The new year has brought a fresh wave of optimism to the tech sector, with Nvidia (NVDA) taking the lead among the “Magnificent Seven” tech stocks. After a group-wide sell-off in the final days of 2024, shares of the AI chipmaker surged 3.5% early Friday, building on a 3% gain the previous day.
A Brief Dip Before the Rebound
The recent upswing follows a 4% dip between Christmas Eve and New Year’s Eve, a period when megacap tech stocks typically experience a “Santa Claus” rally. However, this year, Tesla (TSLA) stock plummeted nearly 13%, while Amazon and Microsoft (MSFT) dropped more than 4%. Meta (META) and Google (GOOG) fell just under 4%, and Apple (AAPL) dipped 3%.
Analysts Remain Bullish
Despite the December decline, Nvidia shares still ended 2024 up more than 150%. Wall Street analysts remain confident in the stock’s potential, estimating it will rise to roughly $173 over the next year from its current level of $138.
Broader Market Forces and Company-Specific Issues
According to Bank of America’s Vivek Arya, the sell-off in Nvidia stock late last year was driven by broader market forces and company-specific issues. Arya noted that the market has seen a rotation of money from semiconductors to software, which is less exposed to US trade restrictions on goods to and from China. He also highlighted Nvidia’s growing pains from transitioning to its new Blackwell artificial intelligence chips.
A Buying Opportunity?
Arya believes these issues are short-term and could create a buying opportunity. While its Magnificent Seven peers are trading at two times their average earnings growth estimates for 2025, Nvidia shares are trading at less than one times the consensus earnings growth for the company this upcoming year.
The AI Factor
Shares of Nvidia and its Magnificent Seven peers have benefited from investors’ massive bets on artificial intelligence as well as earnings growth. 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.
Cautionary Notes
While analysts remain convinced that AI enthusiasm will continue, skeptics warn of a potential bubble that could burst and send AI-fueled stocks tumbling if hype over the new technology fades and Big Tech’s spending on artificial intelligence infrastructure wanes.
Friday’s Market Performance
Tesla, Alphabet, Microsoft, and Amazon also rose Friday, albeit to a lesser degree, while Meta and Apple traded sideways. Tesla rose 1.5%, while Amazon, Alphabet, and Microsoft edged up around 1%.
Leave a Reply