Artificial intelligence will be the catalyst for a fourth industrial revolution rather than being a speculative, 90s-style bubble, according to the US investment bank Wedbush.
It highlights the ongoing debate surrounding AI's impact, which has questioned whether its benefits will be confined to tech giants such as Nvidia Corp, Microsoft Corp (NASDAQ:MSFT) and Palantir or extend across the broader technology sector in 2024 and beyond.
Despite the industry's strong performance and supportive earnings, scepticism remains about the ultimate financial implications of generative AI for the years 2024/2025.
Wedbush likens the current market environment to the "top of the first inning" of a burgeoning $1 trillion+ AI market, led initially by enterprise applications before expanding into consumer use cases by companies such as Apple, Meta, Google, and Amazon.
The firm names Nvidia and Microsoft as pivotal players in spearheading this AI Revolution, with applications expected to proliferate across industries including financial services, healthcare, and retail.
The investment bank underscores that not all companies branding themselves as AI innovators will succeed, emphasising the importance of delivering tangible results in the coming quarters.
Wedbush estimates that AI could account for 8%-10% of IT budgets by 2024, a significant increase from less than 1% in 2023.
Moreover, Wedbush anticipates that every dollar spent on Nvidia’s H100 GPU chip could generate an additional $10-$12 in spending across software, IT services, and infrastructure, indicating the extensive economic impact of AI advancements.
This shift is expected to not only bolster software giants like Microsoft and Salesforce but also accelerate cloud cybersecurity spending, benefiting firms such as Zscaler and Crowdstrike.
With an optimistic outlook, Wedbush maintains that the growth trends and valuations, looking into 2025, support a continuing bull market in tech, potentially bolstered by a soft economic landing and anticipated Federal Reserve rate cuts.
"Lets be clear," said Wedbush in a note to clients. "We have covered tech on the Street since the late 90s and this is NOT a bubble but instead the start of a fourth industrial revolution now on the doorstep that will have major growth ramifications for the tech sector led by the software/use case phase in motion.
"Tech stocks will not go straight up and instead go through digestion periods as more data points are picked up across the supply chain and IT spending landscape which is a healthy process."