Wedbush offers a reassurance for the "AI hype cooling down": Tech stocks have a healthier valuation after the "bubble squeeze"

Intelligence Finance App learned that as the stock prices of the "Seven Tech Giants" plummeted significantly, triggering a sharp pullback in the S&P 500 Index and the Nasdaq Composite Index for three consecutive trading days, the well-known Wall Street investment firm Wedbush Securities sent a reassuring message to the market. Emphasizing the rapid development trend of artificial intelligence and cloud computing, Wedbush Securities stated that the weak quarterly performance of tech giants Google and Tesla leading to the tech stock crash is a "temporary phenomenon." In a recent report, the institution indicated that the global corporate spending wave on artificial intelligence is comparable to the "Fourth Industrial Revolution," and that AI will ultimately significantly enhance productivity. Therefore, the pullback of popular tech stocks related to AI such as NVIDIA is a normal phenomenon. Adjusted valuations are healthier, laying the foundation for future record highs.

Amid the global wave of massive investments in AI by enterprises, a cooling trend has emerged around this epic investment frenzy in AI-related targets such as NVIDIA (NVDA.US). This indicates that the market is beginning to advocate for "squeezing the bubble," suggesting that popular tech stocks at historically high valuations since 2023 due to this AI frenzy may have more or less an "valuation bubble." The reason for this bubble may lie in the market's overly optimistic outlook on the monetization of AI, with cloud giants and software industry giants facing challenges in achieving the optimistic return rates expected by the market in the short term in areas such as AI GPU and other AI infrastructure.

However, from a long-term perspective, analysts at Wedbush stated that the "Fourth Industrial Revolution" has arrived, and human society's productivity will see a significant increase. At that time, the prospects for monetizing AI technology will be extremely optimistic.

The market often prices in optimistic performance expectations in advance. Therefore, popular AI tech stocks like NVIDIA may have already priced in high growth performance until 2025 under the stimulus of the AI wave. During this period, any flaws in performance may lead to one stock price crash after another. Therefore, squeezing the bubble in advance leads to healthier and more rational valuations, laying an important foundation for future "bullish trends."

The sell-off wave in tech stocks in the US market led to the S&P 500 Index and the Nasdaq Composite Index experiencing their worst trading day in over a year this Wednesday, dubbed "Black Wednesday." NVIDIA and Microsoft, leading the seven tech giants, suffered the most severe declines recently. These seven giants hold a high weight in the S&P 500 Index and the Nasdaq, which is a major factor in the recent continuous decline of these two major indices.

On Wednesday, the benchmark stock index in the US, the S&P 500 Index, experienced its most severe single-day decline since December 2022, dropping by 2.3%. It is worth noting that in the previous 356 trading days, the index had never fallen by more than 2%. The remarkable resilience of the S&P 500 Index even set a record for the longest period in 17 years. The tech-heavy Nasdaq and Nasdaq 100 indices both plummeted by over 3.6% at the close of the US stock market, marking the largest scale decline since October 2022.

On Thursday, the S&P 500 and Nasdaq continued to decline for three consecutive days, while the small-cap benchmark index, the Russell 2000 Index, has been outperforming the S&P 500 Index since July. This indicates that under the dominance of market expectations of a Fed rate cut, funds are continuously rotating towards small-cap stocks that have been severely hit in the long term, as small-cap stocks often benefit more from rate cuts Behind the recent significant adjustments in the two major benchmark indices with a high weightage of the "Seven Tech Giants", in addition to market concerns about the profitability prospects of AI and the possibility that the performance of these tech giants, whose valuations are at historical highs, may not meet the market's extremely high performance expectations, the negative expectation of the return of "the King of Understanding" to the White House bringing about additional tariffs that are unfavorable to the stock market is also the dominant logic.

Wedbush calls for the arrival of the "Fourth Industrial Revolution", stating that the pullback of popular tech stocks is a normal phenomenon

"We know that bears often quickly emerge from hibernation mode, marking a day of victory... However, we are focused on digits, capital expenditures, and the ultimate direction of this artificial intelligence revolution," wrote the Wedbush analyst team led by Dan Ives in an investor report. "We believe that this wave of tech stock sell-offs will be temporary, as Wall Street will better digest the performance of tech giants and the broader trend of AI technology development in the upcoming US earnings season."

The Wedbush analyst team has repeatedly emphasized in research reports since 2023 that the current wave of AI spending is the "Fourth Industrial Revolution", and the institution predicts that over $1 trillion in AI spending in the future will come from enterprises, utilities, and government departments, with large tech companies leading the way. The massive spending supporting the "Fourth Industrial Revolution" is expected to propel human societal productivity into a new phase of high growth. The institution insists that AI spending this year is expected to account for approximately 10% of global enterprise IT budgets, compared to less than 1% in 2023.

Wedbush analysts wrote: "As seen this week, Google's parent company Alphabet is accelerating its positive spending on the AI cycle, and we expect other large tech giants to make similar optimistic comments on AI during the earnings season in the coming weeks." They liken this to an arms race taking place domestically in the United States and globally.

"While investors may be concerned about this massive wave of spending and frustrated by the difficulty in achieving profit growth rates or profit margins from these massive investments... we strongly oppose this pessimistic view, as this wave of spending further confirms the existence of the AI revolution."

The institution reiterated its optimistic outlook on US tech stocks and once again predicted that the Nasdaq Composite Index, with tech stocks at its core, will rise by another 15% to 20% by the end of this year, emphasizing companies such as Microsoft (MSFT.US), Amazon (AMZN.US), Palantir (PLTR.US), and Meta (META.US), the parent company of Facebook, as the big winners of the current earnings season.

Wedbush also listed Zscaler (ZS.US), Palo Alto Networks (PANW.US), CyberArk (CYBR.US), Checkpoint (CHKP.US), and Tenable (TENB.US) as the most popular cybersecurity companies, stating that the pace of global tech companies' spending on cybersecurity will be faster than ever under the AI boom, and expressing optimism about the market's focus on low technical operation thresholds and efficient "AI + cybersecurity services" S&P 500 Index's Rally Stalls, UBS Expects Optimistically to Reach 6,500 Points

After experiencing the bursting of the bubble, the valuation of US stocks may become healthier. The trend towards a "long bull trend" may just be a matter of time. From a historical data perspective, even if the S&P 500 Index and the Nasdaq Composite Index pull back by 30%-40%, it is considered a normal correction phase, which does not affect the extremely strong money-making effect of recovering all losses and repeatedly hitting new highs in the future market.

Stephen Suttmeier, a technical analyst at Bank of America, stated in a report on Tuesday, "The expansion of the uptrend and market rotation are typical signs of a bull market. The S&P 500 Index reaching a high last week is a strong performance." Suttmeier believes that strong technical factors combined with the favorable seasonal factors at the end of an election year may help drive the US stock market to new highs later this year.

Matthew Tym, head of stock derivatives trading at Cantor Fitzgerald, said, "We haven't seen much fear in the market. It is a very orderly and passive state. In my opinion, this indicates that no one is in distress at the moment." He mentioned that despite recent volatility, the returns in the US stock market have been very strong over the past few months, putting investors in a favorable position to withstand a moderate increase in volatility.

Recently, the international bank UBS once again significantly raised its target for the S&P 500 Index. The institution now expects the S&P 500 Index to close at 5,900 points this year (the index closed at 5,505 points last week). The institution has also set an "optimistic target for the bull market" at the end of this year as high as 6,500 points, indicating a potential upside of 18% in the bull market.

It is worth noting that UBS initially set the year-end target for the S&P 500 Index at only 4,850 points. However, with the global AI boom helping the index continuously break historical records, UBS has raised its target for the S&P 500 Index four times this year: in January, February, and May to 5,150 points, 5,400 points, and 5,600 points respectively, and this time announced an increase to 5,900 points.

UBS's US stock market investment strategy team stated in its latest report, "We believe that the background of the US stock market remains favorable due to the following factors: steady and expanding profit growth, slowing inflation, the Federal Reserve's shift to rate cuts, and the surge in global corporate investment in artificial intelligence infrastructure and applications under the AI boom, which continues to drive the market capitalization growth of the seven tech giants.

UBS's strategy team emphasized that they are optimistic about the revenue effects brought by the AI boom, which will continue to drive the performance of tech giants like Nvidia beyond expectations, thereby driving the S&P 500 Index to new highs. The institution mentioned in the report that the impact of artificial intelligence technology on corporate productivity and profit growth is much larger than what investors generally expect