Arguably, there’s been no bigger bull in the artificial-intelligence (AI) rally than Wedbush’s Dan Ives.
Ives has been cheerleading the AI boom since shortly after the debut of ChatGPT. In February 2023, the analyst said an AI arms race was shaping up following the launch of the generational AI chatbot.
That statement has been borne out, as Nvidia has raced ahead among chip stocks, fending off recent challenges from AMD and Intel. In addition, cloud infrastructure companies such as Microsoft, Alphabet, Amazon, and Oracle are rapidly buying Nvidia components to serve the AI demands of their own customers.
Ives’ prediction that tech stocks would gain 20% in 2023 was also accurate, as the tech-heavy Nasdaq index finished up 24%. He also called 2024 the “year of AI,” saying that tech stocks would jump 25%. That was also correct.
Now, Ives is banging the drum for tech stocks to continue to rise in 2025, driven by the AI boom. In a recent post on X, Ives predicted that stocks would jump 25% in 2025, building on its gains over the past two years.
Image source: Getty Images.
Ives has argued before that the AI boom will take the form of a multiyear rally in the stock market, much like the dot-com boom of the 1990s, which lasted for five years before ending in a crash.
Despite some concerns that an AI bubble may be forming, signs are generally pointing to a continued rally in AI stocks. First, revenue and profit are likely to continue to soar as stocks like Nvidia are still reporting rapid growth, and other stocks are joining the AI rally, including Micron and now a number of software companies.
There are also larger macro trends that could drive tech stocks higher. In particular, Ives noted a benefit from Lina Khan’s stepping down as head of the Federal Trade Commission. Khan has led several high-profile lawsuits against big tech companies, and the regulatory framework is expected to be friendlier to big business under President Trump.
In addition, investors seem to be anticipating support from the new administration for AI initiatives, as tech stocks jumped following the election. Meanwhile, the race to artificial generative intelligence is well under way, and as long as companies such as OpenAI are working toward achieving that goal, spending on cybersecurity is likely to remain strong.
Tech stocks are coming into 2025 with a lot of momentum, but the biggest risk factor at this point is the valuation. The Nasdaq is up more than 50% over the past two years, and it’s now about as expensive as it’s been at any point since the dot-com bubble.
The Invesco QQQ Trust (NASDAQ: QQQ), which tracks the Nasdaq 100, or the 100 most valuable Nasdaq stocks, now trades at a price-to-earnings (P/E) ratio of 35, and many of the “Magnificent Seven” stocks that make up much of the value of the Nasdaq seem inflated. Apple, for example, now trades at a P/E of 41, and its market cap is approaching $4 trillion, even as revenue is expected to grow by only mid-single digits this year.
Ives’ bullishness isn’t unreasonable, as spending on capital infrastructure to support AI is likely to increase. But with valuations already looking stretched, achieving another 25% increase for the Nasdaq won’t be so easy.
Rather than piling into tech stocks on autopilot, a better strategy would be tactfully investing in this industry. Either wait for pullbacks in specific stocks after doing due diligence in the underlying business, or buy ETFs such as the Invesco QQQ Trust to help diversify risk, or use a combination of both.
With stocks now trading at lofty valuations and a new administration likely to introduce more uncertainty into the stock market, 2025 is likely to be a volatile year for investors. But they’ll probably have opportunities to capitalize on sell-offs, much as we saw after the Federal Reserve scaled back its forecast for rate cuts.
Keeping some dry powder on hand for such movements will almost always pay off, as the AI boom still has the ability to carry the tech sector higher over the next few years. But there should be plenty of pullbacks as the market wrestles with higher prices for the biggest tech stocks.
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Wall Street Analyst Dan Ives Sees Tech Stocks Jumping Another 25% in 2025. Time to Buy? was originally published by The Motley Fool
