Goldman Sachs: Innovation + Low Interest Rates = "Miracle Moment" for Tech Stocks

Wallstreetcn
2024.09.10 07:37
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Goldman Sachs analyst Kash Rangan pointed out that technology stocks need both low interest rates from the Federal Reserve and innovative achievements to achieve profit growth of over 20%. Despite the recent pressure on technology stocks, Rangan emphasized that the growth of the technology industry should recover from 11% to 20%-30%. The low interest rate environment can reduce the cost of capital, enhance investment returns, and the market is currently focusing on the Federal Reserve's policy direction. Goldman Sachs Chief Economist Jan Hatzius' analysis suggests an expected range of 25 to 50 basis points for interest rate cuts

Goldman Sachs remains bullish on US technology stocks.

Due to concerns about a US economic downturn, profit-taking in AI stocks, and other factors, the tech sector has paused its recent rally, with the Nasdaq falling more than 5% since September.

Investor confidence in tech stocks seems to be waning. In light of this, Goldman Sachs' senior tech analyst Kash Rangan recently stated that two factors are needed to reignite the upward momentum of large-cap tech stocks: continuous rate cuts by the Federal Reserve and a surge in innovation, which could drive tech earnings growth by over 20%.

At the recent Communacopia & Technology conference hosted by Goldman Sachs, Rangan emphasized that for the tech industry to return to a growth rate of 20%-30% from 11%, new innovations are crucial. This requires the industry to make significant strides in the AI field (such as upselling to customers and monetization), with a particular focus on the potential of Microsoft and Salesforce.

Furthermore, Rangan highlighted the importance of low interest rates:

When you combine innovation with lower rates, miracles happen.

For tech companies, especially AI firms, a low-rate environment allows them to obtain loans and issue bonds at lower costs, reducing R&D and capital expenses while increasing investment returns.

Currently, investors are closely watching the Federal Reserve's monetary policy decision on September 18th, with market expectations leaning towards the Fed initiating its first rate cut in years.

Goldman Sachs' Chief Economist Jan Hatzius stated at the same conference that while a 50 basis point cut is not ruled out, a 25 basis point cut is more likely. He explained that despite the US making more progress in combating inflation compared to other G10 economies, the current federal funds rate remains relatively high.

Previously, Goldman Sachs analyst Toshiya Hari mentioned at the conference that despite the recent underperformance of NVIDIA's stock, he remains optimistic about it:

"Firstly, the demand for accelerated computing remains very strong. We tend to focus on mega-cap companies (Amazon, Google, Microsoft, etc.), but you will see the demand expanding even into sovereign nations."

When asked if the Goldman Sachs team believes NVIDIA's stock has been oversold, Hari responded, "Yes, we believe so."

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