How will US large-cap tech stocks rebound? Goldman Sachs points the way: "Need a 'magical' moment to help"
Goldman Sachs analyst Kash Rangan pointed out that the recovery of large US tech stocks relies on the steady rate cuts by the Federal Reserve and a series of innovative breakthroughs to drive profit growth of over 20%. He is particularly bullish on Microsoft and Salesforce for their potential in artificial intelligence and value-added services. The Federal Reserve may cut rates at the upcoming meeting, and the market is closely watching its policy direction, with rate cuts helping to stabilize the economy and promote growth in the technology sector
According to the financial news app Zhitong Finance, Kash Rangan, a senior technology analyst at Goldman Sachs, stated that a "magical moment" is needed to drive the rise of large US technology stocks again. The formula for this magical moment, as pointed out by the firm, is the steady rate cuts by the Federal Reserve combined with a series of innovations that will drive profit growth of over 20%.
"We need to raise the industry's growth rate from 11% to 20%-30%, and to achieve this, we must engage in new innovations," Rangan said at a Goldman Sachs communication and technology conference on Monday.
Rangan is optimistic about Microsoft (MSFT.US) and Salesforce (CRM.US), stating that the technology industry must make progress in areas such as customer upselling and monetization, as well as in artificial intelligence.
"When you combine this innovation with lower interest rates, miracles happen," Rangan said.
Federal Reserve Rate Cut Imminent
As the Federal Reserve approaches its next monetary policy decision on September 18th, investors are closely focused on the Fed.
Currently, the Fed has signaled a rate cut for the first time in several years to stabilize the slowing economy.
Jan Hatzius, Chief Economist at Goldman Sachs, stated at the conference, "I do not rule out the possibility of a 50 basis point cut, but I believe a 25 basis point cut is more likely."
"I think there is a good case for (a 50 basis point cut). The reason is, 5.375%, 5.25% to 5.5% is a very high federal funds rate. It is the highest policy rate in the G10. Despite the fact that the US has actually made more progress in inflation than most G10 economies," Hatzius added.
As for another factor that may require more time - signs of new innovations emerging in the artificial intelligence growth story.
Salesforce co-founder and CEO Marc Benioff stated at the end of August that the company is about to release an AI digital agent that can help automate customer service for businesses. Benioff mentioned that Salesforce will charge based on conversations.
Meanwhile, Dr. Lisa Su, Chairman and CEO of AMD (AMD.US), unveiled a series of new AI chips up to 2026 during an interview at the conference on Monday.
"AI is a bigger cycle than I expected five years ago," Su said.
It is certain that tech stocks now indeed need a "magical moment" that combines innovation with a low interest rate environment.
The tech-heavy Nasdaq Composite Index fell by about 5% in September as investors worried about slowing economic growth and took profits in popular AI trades. Investors are also concerned about a slowdown in AI spending, partly due to chip giant NVIDIA's (NVDA.US) mixed earnings in the second quarter.
Goldman Sachs analyst Toshiya Hari stated at the conference, "(NVIDIA's stock) has not performed well recently, but we remain optimistic about the stock. Firstly, the demand for accelerated computing remains very strong. We tend to spend quite a bit of time on hyperscale enterprises - such as Amazon (AMZN.US), Google (GOOGL.US), Microsoft (MSFT.US) - you will see that the demand from enterprises is expanding, even in sovereign states ”