Tech stocks are back, driven by the AI ​​craze, slowing rate hikes


Jen-Hsun Huang, president and CEO of Nvidia Corp., speaks during the company’s event at Mobile World Congress Americas in Los Angeles, California, United States, Monday, October 21, 2019.

Patrick T. Fallon | Bloomberg | Getty Images

Forget the debt ceiling. Tech investors are in buy mode.

THE Nasdaq Composite closed its fifth consecutive weekly gain on Friday, jumping 2.5% in the past five days, and is now up 24% this year, far outpacing other major US indexes. The S&P 500 is up 9.5% on the year and the Dow Jones Industrial Average is down slightly.

Excitement surrounding the chipmaker Nvidia the blast earnings report and its leading position in artificial intelligence technology led the rally this week, but investors also bought shares of Microsoft, Meta And Alphabetwho each have their own AI story to tell.

And with optimism blowing that lawmakers are close to reaching a deal to raise the debt ceiling and that the Federal Reserve may slow its pace of interest rate hikes, the stock market this year is beginning to look less like 2022 and more like the tech-happy decade that preceded it.

“Being focused on these mega-cap tech stocks has been where to be in this market,” Victoria Greene, chief investment officer of G Squared Private Wealth, said in an interview on CNBC’s “Worldwide Exchange” Friday morning. “You can’t deny the potential of AI, you can’t deny the revenue prowess of these companies.”

To start the year, the main tech theme was layoffs and cost cutting. Many of the biggest companies in the industry, including Meta, Alphabet, Amazon and Microsoft, were cutting thousands of jobs after a dismal 2022 for revenue growth and stock prices. In earnings reports, they have emphasized efficiency and their ability to “do more with less,” a theme that resonates with the Wall Street crowd.

But investors have turned to AI now that companies are showcasing real-world applications of the long-hyped technology. OpenAI exploded after the ChatGPT chatbot was released last year, and its biggest investor, Microsoft, is integrating the core technology into as many products as possible.

Google, meanwhile, touts its rival AI model at every opportunity, and Meta CEO Mark Zuckerberg would much rather talk to shareholders about his company’s AI progress than the company’s efforts. in terms of metaverse.

Enter Nvidia.

The chipmaker, best known for its graphics processing units (GPUs) that power advanced video games, is riding the wave of AI. The stock soared 25% this week to a record high and lifted the company’s market capitalization to nearly $1 trillion after first-quarter earnings beat estimates.

Nvidia shares are now up 167% this year, outpacing all companies in the S&P 500. The next top three index winners are also technology companies: Meta, Advanced micro-systems And Selling power.

Nvidia’s story is based on what’s to come, as its revenue in the last quarter fell 13% from a year earlier due to a 38% decline in the games division. But the company’s sales forecast for the current quarter was about 50% above Wall Street estimates, and CEO Jensen Huang said Nvidia was seeing “growing demand” for its data center products.

Nvidia said cloud providers and internet companies buy GPU chips and use the processors to train and deploy generative AI applications such as ChatGPT.

“At this point in the cycle, I think it’s really important not to fight the consensus,” said Brent Bracelin, an analyst at Piper Sandler who covers cloud and software companies, in an interview Friday on “Squawk on the Street” from CNBC.

“The consensus is that, on AI, the big one is getting bigger,” Bracelin said. “And I think that’s going to continue to be the best way to play AI trends.”

Microsoft, which Bracelin recommends buying, rose 4.6% this week and is now up 39% on the year. Meta gained 6.7% on the week and more than doubled in 2023 after losing nearly two-thirds of its value last year. Alphabet rose 1.5% this week, taking its rise for the year to 41%.

One of the biggest drags on tech stocks last year has been the steady central bank interest rate hikes. The increases continued into 2023, with the fed funds target range reaching 5% to 5.25% in early May. But at the Fed’s most recent meeting, some members indicated they expected slower economic growth to eliminate the need for further tightening, according to minutes released Wednesday.

Less aggressive monetary policy is seen as a bullish sign for technology and other riskier assets, which typically outperform in a more stable rate environment.

Still, some investors worry that the tech rally has gone too far given the vulnerabilities that remain in the economy and in government. The divided Congress is making it difficult to reach an agreement on the debt ceiling as the June 1 deadline set by the Treasury Department approaches. Republican negotiator, Rep. Garret Graves of Louisiana, told reporters Friday afternoon on Capitol Hill that “we continue to have major issues that we haven’t closed the gap on.”

Treasury Secretary Janet Yellen said later Friday that the United States would likely have enough reserves to push back a possible default until June 5.

Alli McCartney, managing director of UBS Private Wealth Management, told CNBC’s “Squawk on the Street” on Friday that following the recent rebound in tech stocks, “it’s probably time to take some of that off the table. “. She said her group spent a lot of time looking at the venture capital market and where deals are happening, and they noticed a clear foam.

“You’re either AI or you’re not right now,” McCartney said. “We really have to be ready to see if we don’t get a perfect debt ceiling, if we don’t get a perfect landing, what does that mean, because at those kind of levels we definitely set prices in the United States to hit the high mark on everything and it seems like a terribly precarious place to take risks there.”

SHOW: Full CNBC interview with UBS’s Alli McCartney

Watch CNBC's full interview with UBS's Alli McCartney

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