Stellar third-quarter earnings will revive the tech-stock rally and power the sector to double-digit gains, Wedbush says

• Tech stocks are about to surge again thanks to stellar third-quarter earnings, according to Wedbush.
• The sector started the year on an AI-powered tear, but that rally has ground to a halt in recent months.

Tech stocks will break out of their mid-2023 funk with a double-digit end-of-year rally, according to Wedbush Securities.

Managing director Dan Ives said Thursday that he's expecting the sector's listed companies to post strong third-quarter earnings over the next few weeks that will highlight how the rapid rise of artificial intelligence has juiced up their profits.

"Third-quarter earnings over the coming weeks will be an eye-opener for the Street as the transformational AI growth and stabilizing IT spending environment will create a massive tech rally heading into year-end," he wrote in a research note seen by Insider.

Ives believes that tech stocks will jump between 12% and 15% over the three months ending December 31.

Equities started 2023 on an AI-powered tear, but that rally has fizzled out in recent months with investors fretting about sticky inflation, rising interest rates, an unprecedented crash in long-duration bond prices, and – more recently – the risk that other countries could become embroiled in the conflict between Israel and Hamas.

"While the macro/bond backdrop is confusing for investors and the geopolitical situation caused by the terrorist attack on Israel has created a heartbreaking and nervous situation for the markets, we believe the tech universe is resilient and is poised for a strong earnings season ahead set to prove the doubters wrong," Ives said.

"We use the macro and Fed worries as a time to double down on our bullish tech thesis… and not panic," he added, referring to Wedbush's view that AI is a "fourth industrial revolution" that will drive an extra $1 trillion worth of spending.

The third-quarter earnings season kicks off Friday, with big banks including JPMorgan and Citigroup set to report how they performed financially over the three months ending September 30.