The recent tech sell-off, sparked by results from Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA), has caused significant anxiety on Wall Street. However, Wedbush analysts are confident this downturn will be brief and see it as the beginning of a significant tech bull run driven by a massive AI capital expenditure cycle.
According to Wedbush, "We believe this tech sell-off will be short-lived as the Street better digests results and commentary from the broader tech sector over the coming weeks during earnings season."
"This is the start....not the end of this tech bull run in our view fueled by this AI tidal wave of spending on the doorstep," they argue.
The firm highlights that the sell-off, although unsettling, confirms the robust cloud and AI build-outs fueling what they describe as the "4th Industrial Revolution."
Wedbush estimates that over $1 trillion will be spent on AI capex in the coming years by companies, utilities, and governments, which will drive this AI Revolution.
Alphabet's increased spending on AI, highlighted in their recent earnings, is seen as a precursor to similar announcements from other major tech players. This substantial investment wave is not viewed as a risk but as a necessary step in building the AI ecosystem globally.
Despite investor concerns about the delayed materialization of top-line growth and margins from these investments, Wedbush strongly disagrees, asserting that this confirms the AI Revolution.
"This is not Meta/Zuckerberg head scratching spending on metaverse from 2 years ago, instead this is an AI arms race taking place in the US, China, and around the globe," the analysts emphasize.
Wedbush remains optimistic about a multi-year tech bull run, especially with a potential Fed rate cut creating a favorable risk-on environment.
They foresee tech stocks rising another 15%-20% this year, driven by strong 2Q earnings expected from companies like Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Palantir (NYSE:PLTR), and Meta (NASDAQ:META), as well as key cybersecurity firms such as Zscaler (NASDAQ:ZS), Palo Alto (NASDAQ:PANW), CyberArk, Checkpoint, and Tenable.
In conclusion, Wedbush says that massive sell-offs like yesterday spark Street nervousness, but the pullbacks have previously "created the golden opportunities time and time again to own Big Tech and the winners."