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Latest tech sell-off is a buying opportunity as gains could push shares 15% higher, says Wedbush

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  • The latest sell-off in technology stocks presents a new buying opportunity for investors, Wedbush said.

  • Technology revenues are expected to be strong this season as the AI ​​frenzy continues.

  • A strong earnings season could ultimately push the sector 15% higher, Wedbush predicted.

Technology stocks are a good buy after last week’s decline, as a solid corporate earnings season could deliver another double-digit gain for the sector by the end of the year, Wedbush said.

Technology stocks traded off with the broader market last week, with the Nasdaq Composite down 0.6%, after traders read a favorable report on the consumer price index and adjusted their expectations for Fed rate cuts. Inflation has been higher than expected over the past three months, causing investors to lower the chance of a rate cut in June to 18%, according to CME’s FedWatch tool.

But the earnings environment for tech companies still looks good, Wedbush says, especially considering the artificial intelligence frenzy that has sent tech stocks soaring over the past year. A strong earnings season could be a major positive catalyst for tech, the strategists added, predicting the sector could rise another 15% by the end of 2024.

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“We believe the recent risk and tech sell-off provide a clear buying opportunity for the upcoming tech earnings season,” strategists said in a note on Sunday. “While high CPI, weak bank earnings and geopolitical concerns have pressured stocks, the Broadway stage and bright lights are now focused on a key tech earnings season that we believe will be strong across the board.”

According to consumer surveys conducted by Wedbush, consumer spending trends among internet companies are “strong” in the first quarter. Digital advertising growth is also expected to be robust, she added, which will serve as positive tailwinds for companies like Alphabet, Amazon and Meta.

Meanwhile, AI spending looks set to account for 10% of corporate IT budgets this year, which will be a boon for companies like Microsoft and Palantir. Wedbush strategists expect $1 trillion in AI spending to hit the industry over the next decade, with second, third and fourth waves of spending hitting the industry in the coming years.

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“Our numerous field audits worldwide over the past month give us a high degree of confidence that monetization of the AI ​​revolution is now beginning to reach its next growth acceleration, as the baton has been passed from the semi-finals to the software phase, with use cases exploding increase. the sign,” the note added.

Investor sentiment on Wall Street deteriorated last week as traders weighed the possibility that rates would stay higher for longer. According to the AAII’s latest Investor Sentiment Survey, only 43% of investors say they are optimistic about stocks over the next six months.

Concerns about the recession have also increased, as high interest rates threaten to push the economy into too much of a downturn. According to the latest estimate from the New York Fed, the US has a 58% chance of entering a recession by March 2025.

Stocks rallied on Monday as investors shrugged off geopolitical turmoil in the Middle East and focused on corporate earnings and new macroeconomic data.

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Read the original article on Business Insider

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