Investing.com — Concerns over the approaching the key 5% level, combined with the Federal Reserve signaling a less dovish stance for 2025, have created a clear risk-off sentiment for technology stocks at the start of the year.
Following a historic two-year bull market for tech, driven by the AI boom, the sector now faces a more challenging environment. According to Wedbush analysts, the bond market and rising yields have temporarily shifted the narrative, raising concerns about tech valuations in the current uncertain Fed backdrop.
Still, despite some likely road bumps, the investment bank remains confident about the sector’s outlook.
“The big question investors are asking us is: Can tech stocks move higher in this environment for 2025? The answer is a clear and firm: YES,” analysts led by Daniel Ives said in a Sunday note.
The firm acknowledges the current pressures on tech stocks, including the Fed’s monetary policy, China tariff discussions, and valuation concerns. However, it views these pullbacks as “golden buying opportunities” to invest in companies poised to lead the “AI revolution.”
“As tech earnings approaches over the next month we believe the Street will have a better and even brighter picture of how this $2 trillion of AI capex will change the tech landscape going forward,” analysts noted.
Their top 10 tech stock picks to capitalize on the sell-off include Nvidia (NASDAQ:), Microsoft (NASDAQ:), Amazon (NASDAQ:), Alphabet (NASDAQ:), Salesforce (NYSE:), Palantir (NASDAQ:), Tesla (NASDAQ:), Apple (NASDAQ:), Oracle (NYSE:), and Snowflake (NYSE:).
Wedbush’s conviction is bolstered by discussions with CIOs and IT managers at the recent CES event, which revealed an unparalleled demand for tech and capital expenditure (capex) allocated to AI.
The firm believes that the tech sector’s negative response to the bond market’s influence is a temporary narrative shift, with the underlying demand for AI and its applications across various industries remaining strong.
“The Street is way underestimating the medium-term and longer-term implications of financial model changes to the world of tech which speaks to our view tech stocks will have a robust year ahead despite this bond-driven stumble to start the year,” Ives and his team continued.
While there is a clear potential for more volatility over the coming weeks and months, analysts believe investors should stick to the playbook of buying the sell-offs and owning the “tech winners of the world.”
Furthermore, Wedbush anticipates an increase in tech mergers and acquisitions under the upcoming Trump administration, as market players seek to leverage recent weaknesses in the tech ecosystem, including quantum computing.
