There has arguably been no bigger bull in the artificial intelligence (AI) rally than Wedbush's Dan Ives.
Ives has been cheering the AI boom since shortly after ChatGPT's debut. In February 2023, the analyst said that an AI arms race is developing following the launch of the next generation AI chatbot.
That statement has been confirmed, as Nvidia has raced on among chip stocks, paying attention to recent challenges of AMD a Intel. In addition, cloud infrastructure companies such as Microsoft, Alphabet, Amazona Oracle are rapidly buying Nvidia components to serve their own customers' AI requirements.
Ives' prediction that technology stocks would gain 20% in 2023 was also correct, as the technology heavy Nasdaq finish index up 24%. He also called 2024 “the year of AI,” saying tech stocks would jump 25%. That was also correct.
Now, Ives is banging the drum for tech stocks to continue rising in 2025, fueled by the AI boom. In a recent post on X, Ives predicted stocks would jump 25% in 2025, building on his 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, much like the dot-com boom of the 1990s, which lasted for five years before ending in a crash.
Despite some concerns that an AI bubble may be forming, signs generally point to a continued rally in AI stocks. First, revenue and profits are likely to continue to soar as stocks like Nvidia continue to report rapid growth, and other stocks are joining the AI rally, including Micron and now several software companies.
There are also larger macro trends that could drive tech stocks higher. In particular, Ives noted the benefit of Lina Khan stepping down as head of the Federal Trade Commission. Khan has led several high-profile lawsuits against large tech companies, and the regulatory framework is expected to be friendlier to big business under President Trump.
In addition, investors appear to be anticipating support from the new administration for AI initiatives, as tech stocks jumped following the election. Meanwhile, the race to artificial generative intelligence is well underway, and as long as companies like OpenAI are working towards achieving that goal, spending on cyber security is likely to remain strong.
Tech stocks enter 2025 with a lot of momentum, but the biggest risk factor right now is the valuation. The Nasdaq has increased by more than 50% over the past two years, and is now almost as expensive as it has been at any time since the dot-com bubble.
The Invesco QQQ Trust (NASDAQ: QQQ)which traces the Nasdaq 100or the 100 most valuable Nasdaq stocks, now trading on a price-to-earnings (P/E) ratio. of 35, and many of the “Magnificent Seven” stocks that make up much of the value of the Nasdaq appear to be swelling. An applefor example, now trades at a P/E of 41, and its market cap is approaching $4 trillion, even as revenue is expected to grow by only mid-single digits this year.
Ives' strength is not unreasonable, as spending on capital infrastructure to support AI is likely to increase. But with valuations already looking under pressure, 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 wisely in this industry. Either wait for cash back in specific stocks after doing due diligence on the underlying business, or buy ETFs like the Invesco QQQ Trust to help diversify risk, or use a combination of the two.
With stocks now trading at high valuations and a new administration likely to introduce more uncertainty to the stock market, 2025 is likely to be a volatile year for investors. But they will probably have opportunities to take advantage of a selloff, much as we saw after the Federal Reserve lowered its forecast for rate cuts.
Keeping some dry powder on hand for such moves will almost always pay dividends, as the AI boom can still carry the tech sector higher over the next few years. But there should be plenty of downside as the market contends with higher prices for the biggest tech stocks.
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