Potential Fed cuts provide bullish backdrop for AI stocks: Wedbush
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An array of tech stocks appear likely to benefit, especially the hottest names in artificial intelligence, such as Nvidia (NASDAQ:NVDA), if the Federal Reserve System cuts interest rates this week, according to an investor note by Wedbush.
“In a nutshell we believe the stage is set for tech stocks to move higher into year-end and 2025 in our opinion as the Fed and Powell kick off its rate cutting cycle this week, macro soft landing remains the path, and tech spending on AI remains a generational spending cycle just starting to hit the shores of the tech sector,” said Wedbush analysts, led by Daniel Ives.
A majority of traders expects the Fed to cut rates by 50 basis points.
“However, a rate cut of more than 25bps seems unlikely—while the Fed is late in cutting rates, a larger move might be taken as a sign of panic,” said UBS analyst Paul Donovan. “Higher frequency cuts rather than larger cuts seem most likely.”
In addition to Nvidia, other tech names linked to AI that should benefit from a rate cut include, Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), Palantir (NYSE:PLTR), Salesforce (CRM), Dell (NYSE:DELL), IBM (NYSE:IBM), Apple (NASDAQ:AAPL), AMD (AMD) and ServiceNow (NOW), Ives noted.
Capital expenditures on AI are expected to reach a towering $1T over the next few years.
“As more tech vendors show the monetization piece of AI this will ultimately drive the next leg of the tech bull market in a very stable overall IT spending environment that is a bullish backdrop for tech stocks in our opinion,” Ives added.
The Federal Reserve is slated to release a policy statement on Wednesday, Sept. 18, at 2 p.m. ET.