To push big tech stocks higher again, two key factors need to come together, according to veteran tech analyst Kash Rangan from Goldman Sachs.
The winning combination involves a consistent series of interest rate cuts from the Federal Reserve along with a surge of innovation that drives earnings growth above 20%.
“To achieve a growth rate of 20%-30%, we need new innovations in the industry,” Rangan explained during an interview with Yahoo Finance at the Goldman Sachs Communacopia & Technology Conference.
Rangan, who is bullish on Microsoft (MSFT) and Salesforce (CRM), emphasized the importance of advancements in AI for activities like customer upselling and monetization.
“When you combine this innovation with lower rates, that’s when the magic happens,” Rangan added.
Investor focus is currently on the upcoming monetary policy decision by the Fed on Sept. 18.
The Fed is expected to announce its first rate cut in several years as it aims to stabilize a slowing economy.
Goldman Sachs chief economist Jan Hatzius suggested that while a 50 basis point cut is possible, a 25 basis point cut is more likely.
Regarding the innovation component, progress may take some time, but signs of fresh AI innovation are already emerging.
For example, Salesforce is set to introduce AI-powered digital agents for automating customer service, while AMD unveiled new AI chips through 2026.
“The AI cycle is much larger than anticipated five years ago,” AMD CEO Dr. Lisa Su noted.
Tech stocks, particularly those in the AI sector, have faced challenges in September, with the Nasdaq Composite declining by about 5% amidst concerns of slowing economic growth and AI spending slowdowns.
“While Nvidia’s recent stock performance hasn’t been stellar, we maintain a positive outlook on the stock,” said Goldman Sachs analyst Toshiya Hari.
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Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. For inquiries or tips, email brian.sozzi@yahoofinance.com.
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