- Tech stocks have struggled in August, with Treasury yields spiking and investors fretting about the Federal Reserve's interest-rate hikes.
- But "a tidal wave of AI-driven spending" will fuel another rally, according to Wedbush.
Expect tech stocks' stellar run to continue thanks to a looming surge in spending on AI, according to Wedbush.
Nvidia's second-quarter earnings signaled there will be a massive rise in investment in the sector over the next 12 to 18 months that'll ease investors' worries about the Federal Reserve's interest-rate hikes, analyst Dan Ives said in a research note seen by Insider.
"Our thoughts: despite a stubborn 10-year and the Fed, tech goes higher," he wrote.
"The Nvidia guidance speaks to a tidal wave of AI-driven spending on the horizon for the tech sector over the coming years," Ives added.
Tech stocks have soared in 2023, with the sector-tracking Nasdaq Composite index jumping 31% year-to-date.
But that rally has stalled in August, due to rising US Treasury yields – which boost bonds' appeal relative to stocks – as well as the lingering worry that the Fed will hold interest rates at a higher level for longer in a bid to prevent future inflation flare-ups.
Ives predicted the slowdown this month will prove to be a temporary blip, rather than a longer-term trend, and pointed to profit guidance numbers published last week by Nvidia as evidence of an upcoming AI spending spree.
The semiconductor giant smashed Wall Street analysts' expectations for this quarter and issued stronger-than-expected targets for the next, although its shares dipped slightly in spite of that stellar earnings report.
"It's the rocket ship-like trajectory of AI-driven growth that will hit the shores of the tech industry over the next 12-18 months that speaks to our unabated bullishness for tech stocks," Ives said.
"We also see an improving spending for software, chips, and digital media consumer growth into 2024," he added.