Nvidia, Microsoft and other tech stocks could rise after Fed rate cuts

With the Federal Reserve set to begin cutting interest rates this week, analysts believe tech stocks could get a big boost.

The start of a rate cut cycle it will be a positive signal for the marketswhich have remained relatively low since the August market crash sent the “fear index” soaring. This, associated with the boom in technology spending thanks to artificial intelligence, it will create ideal conditions for technology stocks, Wedbush researchers led by Dan Ives said in a note.

“In short, we think the stage is set for tech stocks to rally at the end of the year and into 2025,” Ives said.

Interest rates remained at 23-year highs of 5.25% to 5.50% from July 2023. At its meeting on September 17-18, the Federal Open Market Committee is expected to cut by 25 basic points. A soft landing for the US economy and a “generational spending cycle” on artificial intelligence will create an ideal growth environment for the sector, Ives said.

The investment firm estimates that for every dollar spent on an Nvidia (NVDA) GPU chipthere is an $8-$10 multiplier in the tech sector. Ives said the tech supply chain appears poised for an “unprecedented period of growth,” driven by an estimated $1 trillion in AI spending over the next few years.

That activity will spur other technology players — from semiconductors and software, to infrastructure, the Internet and smartphones — to get in on the AI ​​act over the next 12 to 18 months, according to Ives.

“While Nvidia and Microsoft (MSFT) are the main drivers of artificial intelligence. Now we’re seeing many other tech stalwarts join the AI ​​party, including Oracle (ORCL), ServiceNow (NOW), Palantir (PLTR), Salesforce (mRCC), Dell (della), IBM (IBM), Apple (AAPL), AMD (AMD) among others,” he said.

Despite some market concerns about AI spending, strategists say Nvidia’s earnings are up giving the green light to Big Tech to continue this spending spree. The chipmaker reported record second quarter revenue of $30 billion for this fiscal year — up 122 percent from a year ago. Analysts had estimated revenue of $28.7 billion for the second quarter — more than double the year-ago revenue of $13.5 billion, according to FactSet (FDS).

Nvidia — whose chips are common train generative artificial intelligence models — has become a barometer of the health of AI demand and enthusiasm, given its huge role in the sector. His stock has also become a driving force in the marketwith its stock up 147% this year and a market cap of $2.92 trillion. Still, stocks have fallen more than 4 percent in the past month as markets brace for the Fed’s decision.