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Tech stocks are back, driven by AI craze, slow rate hikes

Jen-Hsun Huang, President and Chief Executive Officer of Nvidia Corp., speaks during the company’s event at Mobile World Congress Americas in Los Angeles, California, US, on Monday, Oct. 21, 2019.

Patrick T. Fallen | Bloomberg | Getty Images

Forget about loan limits. Tech investors are in a buying mood.

nasdaq The composite closed on its fifth-straight weekly gain on Friday, having jumped 2.5% over the past five days, and is now up 24% this year, outpacing other major US indices. The S&P 500 is up 9.5% for the year and the Dow Jones Industrial Average is down slightly.

Excitement around the chipmaker nvidia’s A blowout earnings report and its leadership position in artificial intelligence technology fueled this week’s rally, but investors also dumped its shares Microsoft, meta And AlphabetEach of which has its own AI story to tell.

And with optimism that legislators are close to a deal to raise the debt limit, and that the Federal Reserve may slow its pace of interest rate hikes, this year’s stock market is starting to look less and less tech-happy like 2022. Is. the decade that preceded it.

In an interview Friday morning on CNBC’s “Worldwide Exchange,” Victoria Green, chief investment officer at G Square Private Wealth, said “being concentrated in these mega-cap tech stocks is where this market should be” at the moment. “You can’t rule out the potential in AI, you can’t rule out the earning potential of these companies.”

To start the year, the main theme in tech was layoffs and cost-cutting. Several large companies in this industry, including Meta, Alphabet, Amazon And Microsoft was eliminating thousands of jobs after a disappointing 2022 for revenue growth and stock prices. In the earnings report, he emphasized efficiency and his ability to “do more with less”, a theme that resonated with the Wall Street crowd.

But investors have shifted their attention to AI now that companies are demonstrating real-world applications of the long-touted technology. OpenAI has exploded since releasing the chatbot ChatGPT last year, and its biggest investor, Microsoft, is embedding the core technology into as many products as it can.

Meanwhile, Google is touting its rival AI model at every opportunity, and Meta CEO Mark Zuckerberg will tell shareholders more about his company’s AI progress than the company’s money-bleeding Metaverse efforts.

Enter nvidia.

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

Nvidia shares are now up 167% this year, the top gainer among all companies in the S&P 500. The next three top gainers in the index are also tech companies: Meta, Advanced Micro Devices And sales force,

Nvidia’s story is poised to come, as its revenue fell 13% from a year ago in the latest quarter due to a 38% decline in the gaming division. But the company’s sales for the current quarter were nearly 50% higher than Wall Street’s estimates, and CEO Jensen Huang said Nvidia is seeing “increasing demand” for its data center products.

Nvidia said cloud vendors and Internet companies are buying GPU chips and using the processors to train and deploy generative AI applications like ChatGPT.

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

“The general consensus is, on AI, bigger gets bigger. And I think that’s the best way to drive AI trends.”

Microsoft, which Breslin recommends a buy, rose 4.6% this week and is now up 39% for the year. The meta gained 6.7% for the week and looks set to more than double in 2023 after losing nearly two-thirds of its value last year. Alphabet rose 1.5% this week, bringing its growth to 41% for the year.

The biggest downside to tech stocks last year was the frequent interest rate hikes by the central bank. The increase continued into 2023, with the fed funds target range climbing to 5%-5.25% in early May. But at the last Fed meeting, some members indicated they expected a slowdown in economic growth, according to minutes released Wednesday, to drive away the need for further tightening.

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

Still, some investors are worried that the tech rally has gone too far given the weaknesses that exist in the economy and government. A divided Congress is making a debt ceiling deal difficult as the Treasury Department’s June 1 deadline approaches. Republican negotiator of Louisiana Rep. Garrett Graves told reporters at the Capitol Friday afternoon that, “We have major issues that we haven’t closed the gap on.”

Alli McCartney, managing director of UBS Private Wealth Management, told CNBC’s “Squawk on the Street” on Friday that after the recent rebound in tech stocks, “maybe it’s time to take something off the table.” She said her group has spent a lot of time looking at the venture market and where deals are happening, and they’ve seen some obvious froth.

“You’re either an AI or you’re not,” McCartney said. “We really have to be prepared to see if we don’t get a full credit limit, if we don’t get a full landing, what does that mean, because at these kinds of levels we certainly see price in the U.S. High focus on everything and it seems like a very uncertain place to take risks.”

Watch: Full CNBC interview with UBS’ Eli McCartney

Watch the full CNBC interview with UBS' Eli McCartney

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