Tech stocks are back, driven by A.I. craze, slowing rate hikes

Forget about the debt ceiling. Technical investors are in a long position.

the Nasdaq The composite closed for its fifth consecutive weekly gain on Friday, jumping 2.5% in the past five days, and is now up 24% this year, far outperforming other major US indices. The S&P 500 is up 9.5% this year and the Dow Jones Industrial Average is down slightly.

Excitement surrounding the chip maker nvidia The explosion earnings report and its leading position in artificial intelligence technology drove this week higher, but investors also snapped up shares MicrosoftAnd meta And the alphabeteach with its own AI story to tell.

As optimism grows that lawmakers are close to a deal to raise the debt ceiling, and that the Federal Reserve may slow the pace of its rate hikes, this year the stock market is starting to look less like 2022 and more like technology. the previous contract.

“The focus in these huge tech stocks is where you need to be in this market,” Victoria Green, chief investment officer at G Squared Private Wealth, said in an interview on CNBC’s “Worldwide Exchange” Friday morning. “. “You can’t deny the potential in artificial intelligence, you can’t deny the profit ingenuity these companies have.”

To kick off the year, the main theme in tech was layoffs and cost cutting. Many of the largest companies in the industry, including Meta, Alphabet, and Amazon And Microsoft, it was cutting thousands of jobs after a dismal 2022 of revenue growth and stock prices. In earnings reports, they stress efficiency and their ability to “do more with less,” a theme that resonates with the Wall Street crowd.

But investors have shifted their focus to AI now that companies are showcasing real-world applications of the long-touted technology. OpenAI exploded after launching the ChatGPT chatbot last year, and its largest investor, Microsoft, is embedding the underlying technology into as many products as possible.

Meanwhile, Google touts its rival AI model at every opportunity, and Meta CEO Mark Zuckerberg would rather tell shareholders more about his company’s AI developments than the company’s faltering efforts to hemorrhage money.

Enter Nvidia.

The chip maker, best known for the graphics processing units (GPUs) that power advanced video games, is riding the artificial intelligence wave. The stock rose 25% this week to a record high and lifted the company’s market value to nearly $1 trillion after first-quarter earnings beat estimates.

Nvidia shares are now up 167% this year, topping all companies in the S&P 500. The top three gainers in the index are also technology companies: Meta, advanced micro devices And sales force.

Nvidia’s story is based on what’s to come, as its revenue in the most recent quarter fell 13% from a year earlier due to a 38% drop in its gaming division. But the company’s sales forecast for the current quarter was nearly 50% higher than Wall Street’s estimates, and CEO Jensen Huang said Nvidia is seeing “surge in demand” for its data center products.

Nvidia said cloud vendors and internet companies are buying GPU chips and using the processors to train and deploy generative AI applications such as ChatGPT.

“At this point in the cycle, I think it’s really important not to fight the consensus,” Brent Bracelin, an analyst with Piper Sandler who covers cloud and software companies, said in an interview Friday on CNBC’s “Squawk on the Street.”

“The consensus is, on AI, the bigger the bigger,” Praslin said. “And I think this will continue to be the best way to play with AI trends.”

Microsoft stock, which Bracelin recommends buying, is up 4.6% this week and is now up 39% for the year. Meta gained 6.7% for the week and has more than doubled in 2023 after losing nearly two-thirds of its value last year. Alphabet stock is up 1.5% this week, bringing its rally this year to 41%.

One of the biggest drags on technology stocks last year was the continuous interest rate increases by the central bank. And the increases have continued into 2023, with the target range for federal funds rising to 5%-5.25% in early May. But at the Fed’s latest meeting, some members indicated they expected a slowdown in economic growth to remove the need for further tightening, according to minutes released Wednesday.

Less aggressive monetary policy is seen as a bullish sign for technology and other riskier assets, which typically outperform in a more stable rate environment.

However, some investors worry that the rise in technology has gone too far given the vulnerabilities that still exist in the economy and government. A divided Congress is making a debt-ceiling deal difficult as the Treasury Department’s June 1 deadline approaches. “We still struggle with major issues that we haven’t closed the gap on,” Republican negotiator Jarrett Graves of Louisiana told reporters Friday afternoon at the Capitol.

Treasury Secretary Janet Yellen said later on Friday that the United States will likely have enough reserves to delay a debt default until June 5th.

Alli McCartney, managing director at UBS Private Wealth Management, told CNBC’s “Squawk on the Street” on Friday that after the recent rebound in tech stocks, “it’s probably time to take some of that off the table.” She said her group has spent a lot of time researching the venture market and where deals are taking place, and they’ve noticed some obvious froth.

“You’re either AI or you’re not at the moment,” McCartney said. “We really have to be prepared to see if we don’t get a perfect debt ceiling, if we don’t get a perfect landing, what does that mean, because at those kinds of levels we certainly put prices in the US a high note on everything and it seems like a fraught place terribly risky to be dealt with with the risks that are out there.”

He watches: The full CNBC interview with UBS’ Alli McCartney