Dan Ives highlights the tech sector’s crucial role in driving earnings growth, fueled by the AI revolution across software, cybersecurity, and hyperscalers like Microsoft and Palantir, predicting a 10-15% rise in tech stocks in the latter half of the year. He also emphasizes the beginning of a multi-year CapEx cycle boosting AI investments, with top stock picks including Microsoft and IBM, while noting potential weaknesses in legacy networking companies.
In the discussion on the current tech earnings season, Dan Ives, Global Head of Technology Research, highlights the pivotal role of the tech and services sector in driving earnings growth. He notes that without this sector, overall earnings growth would be negative. Ives emphasizes the robust growth in consumer subscriptions, such as Netflix internationally, and attributes much of the sector’s hyper growth to the ongoing AI revolution spreading across software, cybersecurity, and other tech areas.
While bullish on the tech sector overall, Ives points out potential weaknesses in certain stocks, particularly in networking companies like Cisco and legacy players such as Dell. He contrasts this with strong prospects in software, hyperscalers like Microsoft and Palantir, and cybersecurity firms, which he sees as major beneficiaries of the AI-driven growth. Ives predicts a golden age for tech, with expectations of a 10 to 15% rise in tech stocks in the second half of the year.
Addressing the recent underperformance in cybersecurity stocks despite bullish sentiment, Ives explains this as a market rotation rather than a fundamental weakness. He believes cybersecurity will be one of the best-performing subsectors this year, driven by increased cloud adoption and the critical need for enhanced security solutions from companies like CrowdStrike, Zscaler, Palo Alto, and Checkpoint.
Ives also discusses the impact of recent legislation boosting capital expenditure (CapEx) through incentives like bonus depreciation. He identifies Palantir, Microsoft, and Oracle as key beneficiaries of increased government and corporate spending, particularly in AI initiatives. He stresses that this CapEx cycle is just beginning and will accelerate, fueling a multi-year tech bull market as companies compete aggressively in the AI arms race.
For top stock picks, Ives highlights Microsoft as a leading hyperscaler poised to join the $4 trillion market cap club alongside Nvidia. He also recommends IBM as an underappreciated player undergoing a renaissance under CEO Arvind Krishna, driven by AI and cloud computing growth. Investors should watch IBM’s cloud and AI-driven revenue as indicators of its success in capitalizing on the AI revolution, making it a compelling, though often overlooked, tech investment.