For big tech stocks to rally again, two factors will need to converge, says Kash Rangan, a veteran technology analyst at Goldman Sachs.
The magic formula is a steady dose of interest rate cuts from the Federal Reserve combined with an explosion of innovation that drives earnings growth by more than 20%.
“We need to get the industry back from 11% growth to 20-30% and to do that, new innovations need to happen,” Rangan told Yahoo Finance at the Goldman Sachs Communacopia & Technology conference on Monday.
Rangan, a fan of Microsoft (MSFT) and Salesforce (CRM), believes the tech industry needs to step up to the plate when it comes to AI in areas such as customer upselling and monetization.
“When you combine this innovation with lower pricing, magic happens,” Rangan said.
Investors’ attention is on the Fed as it approaches its next monetary policy decision on September 18.
The Fed has broadly signaled its first rate cut in years as it seeks to stabilize an economy that is beginning to slow.
“I wouldn’t rule out 50 basis points, but 25 basis points seems more likely to me,” Goldman Sachs chief economist Jan Hatzius told Yahoo Finance at the conference.
“I think there is a solid reason for doing this. [a 50 basis point cut]”And the logic is that 5.3/8, 5.25 to 5.5 percent is a very high federal funds rate. It’s the highest policy rate in the G10. And that’s despite the fact that the United States has actually seen more progress on inflation than most G10 economies,” Hatzius added.
As for the other component, it might take a little longer – although signs of innovation in the field of AI growth are starting to appear.
Salesforce co-founder and CEO Marc Benioff told me in late August that the company is about to launch AI-powered digital agents that can help businesses automate customer service. Salesforce will charge for usage per conversation, Benioff said.
Meanwhile, AMD (AMD) President and CEO Dr. Lisa Su teased a slew of new AI chips through 2026 in an interview at today’s conference.
“AI is a much bigger cycle than I expected five years ago,” Su said.
Sure, tech stocks could use a little magic right now.
The tech-heavy Nasdaq Composite Index fell about 5% in September as investors took profits on booming AI-related trades amid concerns about slowing economic growth. Investors are also worried about a slowdown in AI spending, sparked in part by mixed second-quarter results from chip giant Nvidia (NVDA).
Nvidia is down 11% month-to-date, while AMD is down 7%.
“Recent performances [of Nvidia’s stock] “The results haven’t been great, but we remain positive on the stock,” Goldman Sachs analyst Toshiya Hari told Yahoo Finance at the conference. “First of all, the demand for accelerated computing continues to be very strong. We tend to spend a lot of time on the hyperscalers — the Amazons (AMZN), the Googles (GOOGL), the Microsofts (MSFT) of the world — but you’re seeing a broadening of the demand…
