It’s a big week for the tech sector as heavyweights including Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOG) and Meta Platforms Inc (NASDAQ:FB), among others, prepare to unveil their second-quarter results.
Following a robust performance in the first half of 2023, analysts at Wedbush believe the Street now needs to see what the “AI Revolution” holds for the sector heading into the remainder of the year and 2024.
“While the negative reactions to key prints Tesla and Netflix this past week created some angst among the tech bulls, we believe the set-up is much different this week as Big Tech gets handed the baton with cloud strength, AI monetization, digital advertising stabilization, and a less cautious IT spend environment key themes expected to be front and center,” the analysts wrote in a client note.
“Importantly we believe the cloud behemoths Microsoft, Google, and Amazon will all deliver cloud upside over the next few weeks with an AI dominated focus that is markedly positively changing the direction of IT spending/projects in this environment.”
The analysts believe Microsoft and Nvidia hold leading positions in the AI race and other technology companies besides Google, such as Oracle, Amazon, Salesforce, Palantir, MongoDB, Apple, IBM, Meta, Adobe, Snowflake, C3.ai and other tech stalwarts along with smaller players in the industry will collectively spend tens of billions in the AI arms race in 2023 and 2024, benefitting software, chip, hardware and tech ecosystems.
“This topic will be a key focus of investors this week as the Street is trying to identify those tech players well-positioned for this $800 billion AI Revolution that is set to transform the tech industry over the next decade,” they added.
Setting the tone
While there will be winners and losers in tech, the Wedbush analysts said they ultimately see a strong second half of 2023 for the tech sector with a new bull market underway heading into 2Q earnings season, which is likely to set the tone for the sector looking ahead.
“We believe overall the tech sector will be up another 12%-15% in the second half of this year led by software and the chip sector with Big Tech remaining the ‘torch bearer’ for this tech rally continuing to heat up,” the analysts concluded.
“The 2nd, 3rd, and 4th derivatives of this AI Gold Rush are just starting to evolve for the tech landscape based on our recent work in the field and we view this as a "1995 Internet Moment"...NOT a 1999 Dot.Bubble Moment. We estimate for 2024 AI could comprise up to 8%-10% of overall IT budgets vs. ~1% in 2023.”
Contact the author at stephen.gunnion@proactiveinvestors.com