Investor enthusiasm around artificial intelligence has the Magnificent Seven tech stocks doing well again, including Tesla (TSLA), Meta (META), Amazon (AMZN), Alphabet (GOOG, GOOGL), and Apple (AAPL) stocks. It’s been a year. All stocks have recently hit record highs, with Nvidia (NVDA) stock up more than 175% this year.
Over the next year, investors expect this hype to spread further into sectors such as utility stocks and software stocks, which will continue to benefit from big tech’s big AI investments. David Kostin, chief U.S. equity strategist at Goldman Sachs, expects the S&P 500 index (^GSPC) to reach 6,500 by the end of 2025, with the rest of the market’s gains coming closer to that of large-cap tech stocks. are.
“Revenue growth is more important than valuation, which drives earnings,” Kostin said during Goldman Sachs’ 2025 Media Roundtable with reporters. “If the gap in growth rates narrows, it is likely that (the gap) in performance will also narrow,” he said.
The rapid earnings growth seen in large-cap stocks over the past year and a half is expected to slow, while earnings for the other 493 stocks in the S&P 500 are expected to pick up.
BofA’s equity strategy team, led by Savita Subramanian, has set a year-end target for the S&P 500 index of 6,666 in 2025, which includes a call for higher returns driven in part by AI.
“AI will definitely play a role in 2025 revenues,” Subramanian told Yahoo Finance. “And in fact, one of the reasons we’re so bullish on earnings growth is that not everyone is spending on technology capex, but technology capex is actually picking up, and technology companies are kind of , the idea is that they are spending on a broader range of investments in the industry. ”
Subramanian points out that Microsoft (MSFT), Amazon, Alphabet, and Meta alone will see capital spending increase by 42% in 2024 and another 17% in 2025, bringing their total spending next year to $2,440. It is expected to reach $1 billion. Not all of this spending will go to AI chips. Tech companies are also increasing spending to cover the electricity needed to run AI data centers.
In a 2025 outlook roundtable with reporters, BlackRock Investment Institute noted that the electricity required to run one data center is approximately equal to the average amount of electricity used by all of New York City in a day. . That’s why strategists, including BofA’s Subramanian, are betting on exposure to that part of the tech buildup, including the utility sector (XLU), which is already up more than 20% in 2024, partly due to optimism in AI. I have a bullish view on companies that are
story continues
