Nov 14

"The Tide of AI Expenditure in the Bull Market of Energy Technologies"

The promise of artificial intelligence to reshape a significant portion of the American economy has contributed to the growth of technology company stocks for most of the year before slowing down in the fall. However, investors believed that the profit potential of artificial intelligence had been exhausted.

This view is held by Dan Ives, a technical analyst at Wedbush known for his optimistic outlook on the sector. According to him, expectations of AI's impact on all aspects of the industry are too low, and he anticipates a "tide of expenditure" on AI applications that should boost the shares of companies like Apple by almost 30% next year.

"We view AI as the most transformative technological trend since the emergence of the Internet in 1995, and we believe many underestimate the $1 trillion in AI spending that should occur over the next decade, becoming a golden bottom for the chip and software sectors," Ives wrote in a research note.

Despite a gloomy macroeconomic backdrop, the technology sector managed to lead a broader market rally this year as investors flocked to companies with strong balance sheets that could withstand potential economic downturns.

The excitement around artificial intelligence and cloud computing also prompted investors to buy shares of companies poised to profit from these growing trends. In 2023, the Nasdaq 100 index grew by more than 41%, surpassing the S&P 500 index's growth by almost 15%.

"There are already signs that AI monetization has begun to impact the technology sector," said Ives, pointing to the recent solid quarterly results of Microsoft Corp., Datadog Inc., and Palantir Technologies Inc., which show that new ways of using AI are rapidly spreading across the enterprise and consumer landscape.

In addition to Microsoft and Palantir, favorites in this sector include Apple Inc., Alphabet Inc., Palo Alto Networks Inc., Zscaler Inc., CrowdStrike Holdings Inc., and MongoDB Inc.

However, signs of investor doubt persist—the Nasdaq 100 is vigorously trying to regain its peak from 2023, reached in July and still remains below the level reached in 2021.

Nevertheless, Ives suggests that there might be a short squeeze ahead, as the fundamental growth picture in the sector remains strong, and in his opinion, the current situation is a good time to buy stocks of technology companies that can grow in 2024.

"We have always used macroeconomic turbulence, excitement, Fed slander, and bond vigilantes taking on the narrative as opportunistic moments to buy the highest-quality growth stocks in technology," he said. "This time is no different."
Created with