Tech Needs Another ‘Goldilocks’ Year
(CoinUnited.io) — According to Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, there is a possibility that the momentum seen in 2023 could carry over into 2024. If economic growth accelerates, the rally could extend beyond the Magnificent Seven stocks to other companies that demonstrate strong earnings growth. This could result in a classic rotation or profit recovery into cheaper, cyclical stocks, potentially challenging the dominance of the tech giants.
On the other hand, there is also a chance that the fuel that propelled economic activity in 2023 could start running low, leading to tighter financial conditions and potentially impacting economic growth and corporate profits. This scenario would bring earnings risk back to technology companies, as stated by Suzuki.
Rally May Broaden
Analysts have observed signs of the recent stock-market rally expanding beyond the top-performing stocks of 2023. Investors are now turning to previously neglected areas of the market after the relentless “everything rally” in November.
For instance, the Nasdaq-100 managed to close positively when all Magnificent Seven stocks finished in the red. Similarly, the Russell 2000 index has been outperforming the major indexes by the widest margin since July. These shifts indicate a broader rally where smaller companies have a chance to shine, supported by the increasing adoption of artificial intelligence and more favorable economic conditions.
‘Magnificent Seven’ Could Include New Names
Market strategists believe that there are opportunities beyond the established mega-cap technology players. The “next rung of AI adopters” offers potential investment prospects, particularly companies that can enhance their products using AI.
Dave Sekera, chief U.S. market strategist at Morningstar Research Services, suggests focusing on related players that integrate new technologies into their workflows and drive revenue growth. These companies offer exposure to the AI theme without the high valuation premiums associated with chip manufacturers like Nvidia.
The interest in AI among American companies continues to grow, with a doubling of spending intentions from last year, according to Piper Sandler’s enterprise spending report. The report also highlights the significant opportunity in graphics processing units (GPUs), which are forecast to become a $400 billion market by the end of 2027. Nvidia is expected to be the industry leader, while competitors like AMD and Intel will vie for the remaining market share.
Despite the perceived missed opportunity, Suzuki cautions against solely chasing the secondary beneficiaries of the AI craze. The market dynamics suggest a more nuanced approach to investing in the tech sector for 2024.
Overall, investors are closely watching whether the “Magnificent Seven” stocks will continue to deliver strong performance in 2024. While the rally could extend beyond these tech giants, there are risks and uncertainties that need to be considered, such as the possibility of economic conditions and market dynamics shifting. As the year unfolds, investors will need to carefully evaluate the potential risks and opportunities across the market.