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After the explosive rally in 2023, it’s hard to remember the once bleak investment environment for tech stocks last December. Yes, once-fast-growing tech companies come as inflation reaches multi-decade highs and the Federal Reserve embarks on its most aggressive rate hike cycle in years, ending zero interest rate policy. It was only a year ago that the giant company faced its biggest real-world problem to date. Evaluate the environment that allowed these giants to thrive. Twelve months later, the technology investment landscape has effectively been turned upside down. The rise of artificial intelligence has provided a much-needed catalyst for a struggling industry, with retail investors pouring money into the industry’s fallen heroes. Rising U.S. Treasury yields, which had been weighing on growth sectors, have receded from their highs, and investors are betting on the Federal Reserve easing monetary policy in 2024, including several rate cuts. “We think stocks have essentially come full circle and are starting to recover some of their losses in 2022,” said Freedom Capital’s Jay Woods. This year, in what Meta CEO Mark Zuckerberg called “the year of efficiency,” the tech giant focused on cutting costs and cleaning up its balance sheet, cutting jobs and unprofitable businesses. The move propelled social media stocks to their best year on record. At the same time, his groundbreaking chatbot launched in late 2022, known as ChatGPT, has garnered investor attention, sparking a fierce battle between Alphabet and Microsoft for supremacy in large-scale language models, and AI in general. ignited a frenzy. Behind the scenes, companies leveraging these tools were not left alone. In fact, chipmakers have experienced the most dramatic stock price increases despite their so-called picks and shovels status in the AI world. Nvidia’s long history of developing the graphics processing units needed to power large-scale language models has positioned it as the world’s leading voice in AI. As the calendar year turns, don’t expect tech stocks to match the explosive gains of 2023. But this year’s performance is no fluke. In fact, many portfolio managers expect another rosy year for the sector as interest rates fall, sentiment improves, AI matures and investors look for growth. Masu. AI stocks may dominate tech-focused investing, but don’t overlook other emerging themes. What’s in store for AI and megacaps? When asked about the biggest technology theme of 2023, most investors won’t hesitate to say artificial intelligence. And portfolio managers expect that trend to continue in the new year, as major companies aggressively pour money into new ventures and initiatives. “This is the oxygen of business,” said David Waddell, chief investment strategist at Waddell & Associates. “You better get on the train because you’re all going to die if you don’t smoke this.” AI may still be in its infancy, but breakthrough innovations are already off to a great start. In 2023, powerhouses Alphabet and Microsoft battle it out for the top AI chatbot title. Many decided that Microsoft might have won the first match, but warned that Alphabet would be eliminated. Both companies each rallied more than 55%. GOOGL YTD Mountain Alphabet Stock in 2023 Since then, both companies have rolled out new initiatives in the months since. This includes Alphabet’s Gemini and Microsoft’s Copilot tool, which adds its AI capabilities to the Office 365 suite. How Microsoft’s Copilot sells could have a big impact on whether AI is truly ready to move beyond the large-scale language model training stage, says tech investor Paul Meeks. said. Still, training large-scale language models will remain important in 2024, a trend that favors hyperscalers Microsoft, Alphabet, Amazon, Oracle and data networking infrastructure providers Arista Networks. It is located in The latter rose by 94% in 2023. Meanwhile, Gene Munster of Deepwater Asset Management sees Alphabet’s latest Gemini model as a potential asset for the company’s search business and engagement. Meeks added that the 2024 election cycle could bring big new benefits to mega-cap meta platforms, Alphabet and Amazon, as candidates and companies ramp up advertising spending to reach voters. Morgan Stanley Investment Management’s Andrew Slimmon said mega-cap tech stocks have underperformed the broader market in recent weeks, but may have room for further growth in the new year, and expects them to grow in 2023. He dismissed concerns that stock prices would fall due to the large rise in prices. Not attractive. In fact, many on Wall Street seem to agree with that idea. Meta’s consensus target suggests an 8% rise in the stock, which has nearly tripled this year. Analysts predict that Microsoft and Amazon stock could rise 11% and 18%, according to FactSet. “We’re certainly up significantly this year, but we took a pretty big hit last year,” Slimmon said on CNBC’s “The Exchange” this month, noting that many companies have fallen below the levels seen at the end of 2021. He pointed out that I think there’s more fuel in the tank for these stocks heading into next year. ”Other chipmakers could bounce back Even after an explosive year, NVIDIA’s progress may not be over yet. In fact, Wall Street’s current price target implies an additional 35% upside for the stock. With 2023 earnings expected to be 239%, the stock is “reasonably valued” given next year’s earnings and Nvidia’s growth rate, despite concerns that investors are getting too carried away. Meeks said it looks like it. NVDA YTD Mountain Nvidia stock has more than tripled this year On a price-to-earnings ratio basis, the stock also looks cheaper than it was a year ago, with the chipmaker trading at about 25x forward-to-earnings over the next 12 months, compared to 2016. Currently, it is approximately 34 times larger. Over the past two years, his P/E ratio for NVIDIA has risen to more than 62x. The AI chip darling may continue to shatter Wall Street expectations as it has in recent quarters, but investors shouldn’t overlook other buying opportunities. Advanced Micro Devices and his Super Micro Computer, a customized server maker, round out Meeks’ AI shortlist. Shares have risen 128% and 246%, respectively, this year. He’s also betting on Dell and Hewlett Packard Enterprises as companies look for his PCs with the latest features. Both Meeks and Ken Mahoney of Mahoney Asset Management point to Broadcom as another chipmaker to own. It’s a stock that many investors shy away from, given its daunting sticker price of $1,116. Since the beginning of the year, the stock has doubled and skyrocketed from below $600 at the end of 2022. Regarding the performance of AVGO YTD Mountain Broadcom stock in 2023, Mahoney said that the stock price is not important, but that investors should focus on the movement of the ratio. Up and down. “Broadcom is one of the companies that should be in the ‘Magnificent Seven,’ because it’s not a household name, but it certainly exists in the chip manufacturing space,” Mahoney said. “It’s an area of AI that’s seeing huge movement.” Arm Holdings made headlines this year as one of the first major companies to go public, and after a nearly two-year drought We have revived the IPO market. The British semiconductor company struggled initially, falling below its opening price of $51 per share, but rose to $75.14 per share as of Friday’s close. Mahoney believes Arm is also an overlooked beneficiary of the AI boom in the chip manufacturing industry. Last week, Micron Technology surprised investors with strong quarterly results and guidance that suggests continued recovery in the memory chip market, driven in part by demand for AI. Brent Fredberg of Brandes Investment Partners says some investors may be underestimating how “memory-intensive” AI actually is, and that’s why companies like Micron and Samsung’s dynamic random This should be a major tailwind for access memory companies. Elsewhere, Munsters has started betting on chip supplier Taiwan Semiconductor Manufacturing Co., as it feels it could cash in on the AI tailwind. Spotlight shifts to software, security His 2023 saw major companies from Clorox to his MGM Resorts to Johnson Controls suffer numerous cyberattacks and data breaches. Identity management provider Okta has been the victim of numerous breaches in recent years, and in October it disclosed a hack that put pressure on its stock price and wiped out more than $2 billion in market capitalization. Albert Tsuei of UBS Asset Management said such crimes are expected to become more sophisticated as AI capabilities increase. While this trend may be a major headache for businesses and consumers, it could also be a big boon for cloud and cybersecurity companies that provide tools to combat it. Palo Alto Networks will be well-positioned in 2024 as it needs to strengthen its defense systems against attacks while filling the technical talent workforce with automated routines, Tsuei said. Meanwhile, William Blair’s Jonathan Baugh predicts that to meet the various cyber needs, companies will explore available all-in-one solutions. He not only likes Palo Alto Networks, but also other big companies like CrowdStrike and Microsoft. Both Palo Alto and CrowdStrike more than doubled this year. After going through a difficult period, software stocks as a whole may finally reach a turning point in the new year. With the Salesforce upgrade, Morgan Stanley highlighted the software giant’s “bridge to better growth” in the new year as AI becomes the company’s growth engine. Overall, Morgan Stanley expects software to be “on the precipice of the biggest innovation cycle in decades.” Salesforce stock has nearly doubled just this year, and the company’s $350 price target implies an upside of about 33% from Friday’s closing price. “Software’s long-term advantage remains firmly intact,” analyst Keith Weiss wrote in a December note. “Add in improved IT budgets and margins and the sector should remain in the best position for 2024.” This is why Tsuei believes Salesforce is often overshadowed by more attractive mega-cap winners. That’s one of the reasons we cited it as an “underappreciated” AI opportunity. Hubspot is similar, but targeted at small and medium-sized businesses, Tsuei added. He expects IT budgets to improve and spending supporting the software sector to rebound overall, as companies will need to spend big on the infrastructure needed to prepare the data they collect in the AI world. are doing. “This is an area where the benefits tend to increase over time,” he said. “Certainly there will be room for other companies to participate in this.”
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