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- AI-driven growth will fuel the tech rally into the year's end and beyond, Wedbush Securities Dan Ives said.
- The bull run will continue despite uncertainty over the Fed's interest rates and an elevated 10-year Treasury yield.
- Tech spending has been stable in the third quarter, laying the groundwork for further gains
The tech sector will rally well into 2024, as an artificial intelligence spending spree will help it power the sector past policy concerns and higher bond yields, Wedbush Securities' Dan Ives wrote on Tuesday.
"We believe the Nvidia guidance last month heard around the world speaks to a tidal wave of AI-driven spending on the horizon for the tech sector over the coming years," he said, estimating tech growth to last for the next 12-18 months.
This year's AI advancements gave rise to the Magnificent Seven, a cohort of leading mega-cap tech stocks that have ballooned to an $11 trillion market cap. In the first half of the year, they accounted for 73% of gains in the S&P 500.
Meanwhile Nvidia, which manufactures the chips that power AI programs, pulled in $13.5 billion in its last earnings report.
According to Ives, stable and improving tech spending in the third quarter has laid the groundwork for a further bullish run into year-end.
That's despite investor uncertainty over the trajectory of monetary policy. Since June, the Federal Reserve has indicated that rates may need to remain elevated, with recent inflation data supporting a higher-for-longer approach as prices appear stubbornly high.
Investors may also be discouraged by bond market signals, with 10-year Treasury yields steadily above 4% since August.
But Ives sees tech overcoming these uncertainties, mainly through the power of AI spending that is set to boost the sector for the next 12-18 months. Meanwhile, heavy enterprise spending is about to pay off for Microsoft, Google, and Amazon, while software, chips, and digital media spending is seen as improving into 2024.
With $1 trillion of tech spending "in clear sights," Ives also suggested that the Fed's monetary hawkishness may end sooner than realized:
"We believe tech stocks rip higher into year-end with the new tech bull market here despite the Street's near-term focus on the Fed, which is starting to finally wave the white flag in our opinion with rate cuts on the horizon in 2024," Ives wrote.