There has probably been no bigger bull in the artificial intelligence (AI) rally than Wedbush's Dan Ives.
Ives applauded the AI boom shortly after ChatGPT debuted. In February 2023, an analyst said that an AI arms race is looming after the launch of a generational AI chatbot.
This statement was confirmed, as Nvidia surged ahead among chip stocks, reflecting recent challenges AMD and Intel. In addition, cloud infrastructure companies such as Microsoft, Alphabet, Amazonand Soothsayer they are quickly buying Nvidia components to meet their own customers' AI requirements.
Ives' prediction that tech stocks would grow 20% in 2023 was also accurate because Nasdaq the index ended up 24%. He also called 2024 “the year of artificial intelligence” and said tech stocks would grow by 25%. That was right too.
Now Ives is banging the drum for tech stocks to continue to rise in 2025, driven by the AI boom. In a recent post on X, Ives predicted the stock would jump 25% in 2025, based on its gains over the past two years.
Image source: Getty Images.
Ives has previously argued that the AI boom will take the form of a multi-year stock market rally, similar to the dot-com boom of the 1990s, which lasted five years before crashing.
Despite some concerns that an AI bubble may be forming, signs generally point to continued growth in AI stocks. First, revenue and earnings are likely to continue to rise as stocks like Nvidia continue to report rapid growth and other stocks join the AI rally, including Micron and now a number of software companies.
There are also larger macro trends that could push tech stocks higher. In particular, Ives saw the benefit of Lina Khan stepping down as head of the Federal Trade Commission. Khan has led several high-profile lawsuits against big tech companies, and the regulatory framework is expected to become more business-friendly under President Trump.
Additionally, investors appear to be expecting support from the new administration for AI initiatives, as tech stocks jumped after the election. Meanwhile, the race to artificial generative intelligence is well underway, and as long as companies like OpenAI continue to work toward that goal, cybersecurity spending is likely to remain high.
Tech stocks enter 2025 with great momentum, but the biggest risk factor at this point is valuation. The Nasdaq it's up more than 50% in the past two years and is now about as expensive as it's been since the dot-com bubble.
The Invesco QQQ Trust (NASDAQ: QQQ)which follows Nasdaq 100or Nasdaq's 100 Most Valuable Stocks, is now trading at a price-earnings (P/E) ratio. of 35, and many of the “Magnificent Seven” stocks that make up much of the Nasdaq's value appear inflated. Applefor example, it now trades at a P/E of 41 and has a market cap approaching $4 trillion, even though revenue is only expected to grow by mid-single digits this year.
Ives' bullish sentiment is not unreasonable, as spending on capital infrastructure to support AI is likely to increase. But with valuations already looking stretched, achieving another 25% gain for the Nasdaq won't be so easy.
Rather than piling into tech stocks on autopilot, a better strategy would be to invest tactfully in the industry. Either wait to pull specific stocks after doing due diligence on the underlying business, or buy an ETF like the Invesco QQQ Trust to help diversify your risk, or use a combination of the two.
With stocks now trading at high valuations and the new administration likely to introduce more uncertainty to the stock market, 2025 is likely to be a volatile year for investors. However, they will likely have an opportunity to capitalize on the selloff, as we saw after the Federal Reserve lowered its rate cut forecast.
Having some dry powder on hand for such moves almost always pays off, as the AI boom still has the ability to push the tech sector higher in the next few years. But there should be plenty of downside as the market grapples with higher prices for the biggest tech stocks.
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