Tech’s extended bull run has more legs to play out, with a key imminent catalyst potentially giving a thrust to the stocks belonging to the sector, according to an analyst at Wedbush.

Fed To Kickstart Risk-On Trade: The Federal Reserve will finally begin to cut interest rates in the current monetary policy cycle. The likely cut will come two-and-a-half years after the first rate hike implemented to curb inflationary pressure that reared its ugly head following the stimulatory measures implemented to offset the impact of the COVID-19 pandemic.

Wedbush’s Daniel Ives said tech investors now look forward to risk-on trade after some nervousness seen in late July. “Despite all the noise and white knuckles, overall tech earnings have been generally robust with Oracle Corp. ORCL, the latest tech stalwart to give more validation that the AI Revolution is starting to quickly move towards the much-awaited software and use case part of the cycle,” he said.

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Growth Sweet-spot: The tech supply chain is gearing up for an “unprecedented” period of growth, driven by the massive artificial intelligence capex spending over the next few years, Ives said, basing his view on Asia checks.

The AI revolution, which kickstarted with Nvidia Corp. NVDA, now has ramifications for the broader tech sector, the analyst said, calling the technology the fourth industrial revolution. This revolution is happening across semiconductor, software, infrastructure, internet and smartphones and will likely extend over the next 12 to 18 months, he said.

Nvidia and Microsoft Corp. MSFT are core drivers of AI, and now other tech stocks such as Oracle, ServiceNow, Inc. NOW, Palantir Technologies Inc. PLTR, Salesforce, Inc. CRM, Dell Technologies, Inc. DELL, International Business Machines Corp. IBM, Apple, Inc. AAPL and Advanced Micro Devices, Inc. AMD are joining the party as well, he said.

“We believe the stage is set for tech stocks to move higher into yearend and 2025 in our opinion as the Fed and Powell kick off its rate-cutting cycle this week, macro soft landing remains the path, and tech spending on AI remains a generational spending cycle just starting to hit the shores of the tech sector,” Ives said.

Why It’s Important: The Invesco QQQ Trust QQQ, an exchange-traded fund that tracks the Nasdaq 100 Index, has been on an extended uptrend since the start of 2023. This is despite the hiccup seen since mid-July due to concerns about the lavish capex plans of AI companies.

Source: Benzinga Pro data.

The extended run-up introduces caution among investors, given valuations have become stretched. Analysts also see the laggards and leaders switching places when the Fed begins to cut rates, with underperforming interest-rate sensitive small-cap stocks seen as the biggest beneficiaries.

Tech bulls such as Ives see the broadening of the rally rather than one gaining at the expense of the other, given the massive potential AI offers.

The QQQ settled Friday’s session up 0.45% at $475.34, according to Benzinga Pro data. The Technology Select Sector SPDR Fund XLK gained 0.50% to $220.44 and is up about 15% for the year.

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