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As earnings season winds down, there has been a notable pullback in some of the tech sector’s biggest companies, including Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), both of which have lost ground over the past month.
While the broader indexes continue to chop around, it’s likely any pullback in tech will be “short lived,” with artificial intelligence likely leading stocks higher, Wedbush Securities said.
Analyst Dan Ives reiterated his call from earlier in the year that tech stocks will add another 12% to 15% before the end of the year, citing his opinion of a new bull market, aided by enterprise cloud spending and hyperscale projects from the likes of Microsoft (MSFT), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) (GOOGL).
Amazon shares rose sharply after reporting second-quarter results, aided by strong guidance and a stabilization in Amazon Web Services, which Ives described as a “flex the muscles quarter.”
Driving all of this is the AI gold-rush, which has become the topic of the year in capital markets and has resulted in some likening it to the early days of the internet.
“From the hundreds of conference calls we listened to over the past month [it’s] clear that the AI theme is changing the enterprise and consumer landscape going forward and creating a bifurcated spending environments for the winners and losers in this backdrop,” Ives wrote, adding that areas like PC and infrastructure are soft, while cloud, cyber security, digital advertising and enterprise largely see strength.
Ives admitted there have been some instances of weakness in these areas, with Fortinet (FTNT), Datadog (DDOG), Snap (SNAP) and Alteryx (AYX) all recently reporting weakness and concerns about the future.
These concerns are likely only temporary, especially with AI seemingly poised to dominate the conversation over the next several years, Ives explained.
“We are now in the use case study phase and build out stage of AI which ultimately is setting up for a massive cycle of spend,” Ives wrote, adding companies like Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Google (GOOG) (GOOGL), Oracle (ORCL), Palantir (PLTR), MongoDB (MDB), Snowflake (SNOW), Salesforce (CRM), AMD (AMD) and C3.AI (AI) should benefit.
With the Federal Reserve likely ending its rate hike cycle and continued strength related to AI spending, Ives sees “a green light risk-on environment into year-end,” with the bull market “raging” into the next 12 to 18 months.
