AI Revolution To Drive Better-Than-Expected Q2 Earnings In Tech Sector, Says Wedbush

According to the financial services and investment firm Wedbush Securities, the technology sector is anticipated to surpass expectations this second-quarter earnings season, primarily due to the rapid adoption of artificial intelligence (AI). The firm has identified Microsoft Corporation MSFT and Nvidia Corporation NVDA as standout performers in the burgeoning AI space.

AI Investments Skyrocketing

In a significant push into AI, Microsoft announced earlier this year a multi-billion dollar, multi-year investment in OpenAI, the research lab responsible for the generative AI chatbot, ChatGPT. This move followed their previous investments in 2019 and 2021.

Similarly, Nvidia has been making notable strides in AI, launching several new products and services in May, including the DGX GH200 AI supercomputers.

A New Tech Bull Market On The Horizon

Wedbush analysts, including Daniel Ives, shared their belief that a new tech bull market is taking shape, propelled by the AI revolution. They predict an above-average second-quarter earnings season for the tech sector in the coming weeks.

The firm sees Microsoft uniquely poised to increase its share in the cloud market, potentially expanding its total addressable market around the cloud by 35% to 40% in the next few years. Tech behemoths such as Google GOOGL and Amazon.com AMZN are now playing catch-up with Microsoft in this AI-driven cloud race.

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Billion-Dollar AI Spend Forecast

Several tech companies, including Oracle ORCL, Salesforce CRM, and Apple AAPL, are expected to join Microsoft and Nvidia in investing tens of billions in AI over 2023 and 2024.

Wedbush analysts see enterprise IT budgets showing signs of improvement in the June quarter, with AI spending becoming a “reality, not hype.”

NVIDIA Strongly Outperformed Tech Rivals Since Q2, This Chart Shows

A Bright Future For Tech Stocks

Wedbush predicts a broad tech rally ahead as investors begin to comprehend the implications of an estimated $800 billion AI spending wave.

The firm anticipates a 12% to 15% increase in the overall tech sector in the second half of the year, driven by the software and chip sectors, with Big Tech acting as the torch-bearer of this rally. Wedbush sees AI forming up to 8% to 10% of overall IT budgets next year, compared to the projected 1% for this year.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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