Last week was a bumpy ride for tech stocks as earnings from Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) and Tesla, Inc. (NASDAQ: TSLA) set off a major sell-off that sent chills down investors' spines.
Big Tech should calm any remaining jitters this week as other top players in the sector show how much they are investing in artificial intelligence in their quests for gold medals, an analyst says.
This week's upcoming tech earnings will be "a major positive catalyst" for the sector, which should see stocks jump another 15% to 20% for the year, Wedbush analyst Daniel Ives said.
"Now the broader tech growth story takes center stage with Big Tech names taking the torch this week aiming for a gold medal with all the Street watching," he wrote in a note on Monday.
Investors will be paying close attention to earnings, he said, from fellow behemoths Microsoft Corp (NASDAQ: MSFT), Amazon Inc. (NASDAQ: AMZN) Meta Platforms, Inc. (NASDAQ: META), Apple Inc. (NASDAQ: AAPL) and others for any cues on capital expenditure and consumer spending trends in the AI space that clearly show that making money off AI will boost Wall Street numbers to the end of 2025.
"We believe the tech sell-off seen last week will be short-lived as the Street better digests results and commentary from the broader tech sector over the coming weeks during 2Q earnings season," he wrote in a note.
"This is the start ... not the end of this tech bull run we expect the next few years."
Microsoft is scheduled to report fiscal fourth-quarter earnings on Tuesday, while Meta plans to post its fiscal second-quarter earnings on Wednesday. On Thursday, Amazon is set to release its second-quarter results and Apple is expected to reveal its earnings for its fiscal third quarter.
"We estimate that companies, utilities, governments will spend over $1 trillion combined in AI capex over the coming years fueling this AI Revolution," Ives wrote.
"Alphabet is accelerating its spending on the AI cycle and we expect similar comments from Big Tech stalwarts this week."
He said investors may be worried about the "massive spending wave" and frustrated that it will take time for AI investments by these tech giants to show up in quarterly results, but patience will be needed on the coming AI payback.
"We strongly contrast this is not Meta/Zuckerberg spending on metaverse from 2 years ago, instead this is an AI arms race taking place in the U.S., China, and around the globe for building out the enterprise and consumer AI ecosystem," he said. "Rome was not built in a day and neither will this unprecedented AI Revolution."
Wedbush is therefore "focused on a multiyear bull tech run" while the Federal Reserve is expected to cut interest rates in a risk-on environment that will impact future derivatives of the AI revolution, Ives said.
That said, the Wedbush "playbook continues to be on the AI Revolution thesis and winners on sell-offs like we experienced last week," he wrote.
Price Action: Tech stocks were trending upward for the most part as Monday's trading approached mid-day.
- Microsoft edged up 0.39% to $426.90
- Amazon rose 0.24% to $182.94
- Meta gained 0.17% to $466.86
- Apple is up 0.21% to $218.41
- Tesla jumped 5.38% to $231.62
- Alphabet went up 1.32% to $170.91