Kash Langan, a veteran tech analyst at Goldman Sachs, says two things need to come together for big tech stocks to rise again.
The magic formula is a certain amount of interest rate cuts by the Federal Reserve combined with an explosion of innovation that accelerates profit growth by over 20%.
“We have to get the industry growth back from 11% to 20% to 30%, and to do that new innovation has to happen,” Langan said Monday at the Goldman Sachs Communacopia and Technology Conference. told Yahoo Finance.
Langan, a Microsoft (MSFT) and Salesforce (CRM) bull, said the technology sector needs to make gains on the artificial intelligence front in areas such as customer upselling and monetization.
“When you combine that innovation with lower interest rates, magic happens,” Langan said.
As the next monetary policy decision approaches on September 18th, investors’ attention is focused on the Federal Reserve.
The Fed is widely telegraphing its first interest rate cut in years in an effort to stabilize an economy that has begun to slow.
“I wouldn’t rule out 50 basis points, but I think 25 basis points is more likely,” Jan Hatzius, chief economist at Goldman Sachs, told Yahoo Finance at a conference.
“I think there’s a solid rationale for[a 50 basis point rate cut]and that rationale is that 5 and 8 for 5.5%, 5 and 1/4 is a very high federal funds rate. This is the highest policy rate in the United States, even though the United States actually has higher inflation than most G10 countries,” added Hadsius.
Read more: The Federal Funds Rate: What it is and how it affects you
Other elements may take a little longer, but signs of new innovations within the AI growth story are beginning to surface.
Salesforce co-founder and CEO Marc Benioff said in late August that the company was close to releasing an AI-powered digital agent that could help automate customer service. Benioff said Salesforce plans to charge a fee for each conversation.
Meanwhile, AMD (AMD) Chairman and CEO Dr. Lisa Su unveiled a series of new AI chips by 2026 in an interview at a conference today.
“AI is a much bigger cycle than we expected five years ago,” Su said.
Indeed, tech stocks could use a little magic right now.
The tech-heavy Nasdaq Composite Index fell about 5% in September as investors booked profits on hot AI trades amid concerns about slowing economic growth. Investors are also concerned about a slowdown in AI spending, in part due to mixed second-quarter results from semiconductor giant Nvidia (NVDA).
the story continues
Nvidia is down a whopping 11% month-to-date, while AMD is down 7%.
Goldman Sachs analyst Toshiya Zhang told Yahoo Finance at a conference: “Even though[NVIDIA stock’s]recent performance has been poor, we continue to have a positive view of the stock.” he said. “First of all, the demand for accelerated computing remains very strong. We tend to spend a fair amount of time on hyperscalers like Amazon, Google, and Microsoft, but the demand profile is expanding. Even sovereign states can participate in business. ”
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Brian Sozzi is editor-in-chief of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi And also on LinkedIn. Have a tip about a deal, merger, activist situation, or more? Email brian.sozzi@yahoofinance.com.
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