Tech stocks are back, driven by A.I. craze, slowing rate hikes

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

this Nasdaq The composite index closed Friday with a fifth straight weekly gain, up 2.5% over the past five days and up 24% for the year, far outperforming other major U.S. indexes. The S&P 500 is up 9.5 percent this year, while the Dow Jones Industrial Average is down 2 percent.

Excitement Surrounds Chipmakers Nvidia’s Earnings blowout and its lead in artificial intelligence technology fueled this week’s gains, but investors also snapped up Microsoft, Yuan and lettereach with its own AI story to tell.

With lawmakers nearing a deal to raise the debt ceiling and optimism brewing that the Federal Reserve may slow its pace of rate hikes, this year’s stock market is starting to look less like 2022 and more like the decade before it for tech stocks.

“Focusing on these big tech stocks has been the direction this market has been in,” Victoria Greene, chief investment officer at G Squared Private Wealth, said in an interview on CNBC’s “Global Exchange” Friday morning. “You can’t deny the artificial Smart potential, you can’t deny the profitability of these companies.”

At the start of the year, the tech industry was all about layoffs and cost-cutting. Many of the largest companies in the industry, including Meta, Alphabet, amazon And Microsoft, after growing revenue and dismal stock prices in 2022, is cutting thousands of jobs. In their earnings report, they emphasized efficiency and their ability to “do more with less,” a theme that resonated with the Wall Street crowd.

But investors have turned their attention to artificial intelligence as companies are demonstrating real-world applications of the long-hyped technology. OpenAI exploded after releasing the chatbot ChatGPT last year, and its biggest investor, Microsoft, is embedding as much core technology into the product as possible.

Meanwhile, Google is using every opportunity to tout its rival’s AI models, and Meta CEO Mark Zuckerberg would rather brief shareholders on his company’s AI advancements than his company’s money-losing fortunes in the metaverse. effort.

Enter Nvidia.

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

Shares of Nvidia are up 167% this year, the most of any company in the S&P 500. The index’s next three biggest gainers were also tech companies: Meta, Advanced Micro DevicesCompany and sales force.

Nvidia’s story is based on what’s to come, as its most recent quarter’s revenue fell 13% from a year earlier, driven by a 38% drop in its gaming division. But the company’s sales forecast for the current quarter was about 50 percent higher than Wall Street estimates, and Chief Executive Jensen Huang said Nvidia saw a “surge in demand” for its data center products.

Cloud providers and internet companies are buying GPU chips and using those processors to train and deploy generative AI applications like ChatGPT, Nvidia said.

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

“The consensus is that in AI, big gets big. I think that will continue to be the best way to play on the AI ​​trend.”

Microsoft, which Bracelin recommends buying, is up 4.6 percent for the week and 39 percent for the year. After losing nearly two-thirds of its market value last year, Meta rose 6.7% this week and more than doubled by 2023. Alphabet rose 1.5% for the week and 41% for the year.

One of the biggest drags on tech stocks last year was the continued rate hikes by central banks. That increase has continued through 2023, with the fed funds target range climbing to 5%-5.25% in early May. But at the last Fed meeting, some members said they expected slower economic growth to eliminate the need for further tightening, according to meeting minutes released on Wednesday.

A less aggressive monetary policy is seen as a positive sign for technology and other riskier assets that typically outperform in a more stable interest rate environment.

Still, some investors worry that the tech rally has gone too far given remaining economic and government vulnerabilities. A divided Congress is making a debt ceiling deal difficult as the Treasury Department’s June 1 deadline looms. “We still have some big issues, but we haven’t bridged our differences yet,” Republican negotiator Garret Graves of Louisiana told reporters at the Capitol on Friday afternoon.

Alli McCartney, managing director at UBS Private Wealth Management, said on CNBC’s “Squawk on the Street” on Friday that with the recent rally in tech stocks, “it may be time to get some stocks out of the way.” She said her team Having spent a lot of time researching the venture capital market and where deals are happening, they noticed some glaring bubbles.

“You’re either AI, or you’re not now,” McCartney said. “We really have to be ready to see if we don’t have a perfect debt ceiling, if we don’t have a perfect landing, what does that mean, because at these levels, we’re definitely pricing the U.S. to touch on everything. Highly regarded, it seems like a very volatile place to be in given the risks there.”

watch: CNBC’s full interview with UBS’ Alli McCartney