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Fed Ensures a Tech Rally Yet Again in 2024: 5 Top Picks
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The Fed set the stage for this year’s Santa Claus rally in mid-December after its latest FOMC meeting. U.S. stock markets have soared amid a clear indication from the central bank that the current interest rate hike cycle, which elevated the Fed fund rate to a 22-year high of 5.25-5.50% from 0-0.25% in March 2022, finally ended.
Moreover, the December FOMC meeting dot-plot has shown that on average, Fed officials are expecting at least three rate cuts of 25 basis points each in 2024, followed by four more rate cuts of a full one percentage point in 2025.
The dot plot has also indicated three more rate cuts in 2026, which would take down the benchmark lending rate to the range of 2-2.25%. Following the Fed’s decision, the yield on the benchmark 10-Year U.S. Treasury Note fell less than 4% for the first time since March 2023. The yield topped more than 5% in October.
Fed officials currently expect core inflation to fall 3.2% in 2023, 2.4% in 2024, and then to 2.2% in 2025. Finally, it should decline to the 2% target in 2026. Despite rigorous interest rate hikes, the fundamentals of the U.S. economy remain strong.
On Dec 14, the Atlanta Fed the U.S. GDP to grow by 2.6% in fourth-quarter 2023, a notable improvement from the 1.2% estimated on Dec 7. This eliminates the fear of a recession in 2024 thereby boosting investors’ confidence in a possible soft landing for the U.S. economy.
Technology Sector to Benefit the Most
Buoyed by steadily decreasing inflation and a simultaneous reduction in the magnitude and number of interest rate hikes by the Fed, the technology sector has witnessed an astonishing rally in 2023. The impressive northbound journey of Wall Street this year after a highly disappointing 2022, has been predominantly driven by a tech rally.
Despite its higher valuation, the tech rally is likely to gather more pace in 2024 as a low market rate of interest always boosts growth stocks like technology. Investment in growth stocks creates wealth over a long period of time. A lower market interest rate will decrease the discount rate, which in turn will raise the net present value of investment. Moreover, many of these companies depend on the chip source of credit for the business to grow.
The tech rally in 2023 was led by a massive thrust toward artificial intelligence (AI), especially generative AI. The rapid penetration of digital technologies and the Internet worldwide during the lockdown period, ushered in significant adoption of AI.
Some financial and technology experts believe that AI is much-hyped and may lead to a bubble. We believe the AI-space has yet to unfold in the United States and international markets. Once that happens, it will generate huge business opportunities for technology companies producing high-end products.
Our Top Picks
We have narrowed our search to five technology behemoths (market capital > $50 billion) that have strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Meta Platforms Inc. (META - Free Report) is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is considered to have pioneered the concept of social networking.
However, as developed regions mature, Meta Platforms has taken measures to drive penetration in emerging markets of South East Asia, Latin America and Africa. Of all places, India deserves a-special mention in terms of user growth. The world’s second-largest populated country offers tremendous potential for META. With China off the radar, India can prove to be a terrific growth engine for Meta.
Meta Platforms has an expected revenue and earnings growth rate of 13.4% and 22.7%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.1% over the last 30 days.
NVIDIA Corp. (NVDA - Free Report) is gaining from the strong growth of artificial intelligence, high-performance computing and accelerated computing, which is boosting its Compute & Networking revenues. The datacenter end-market business is likely to benefit from the growing demand for generative AI and large language models using GPUs based on NVIDIA Hopper and Ampere architectures.
A surge in Hyperscale demand and a solid uptake of AI-based smart cockpit infotainment solutions are acting as tailwinds for NVDA. Collaboration with Mercedes-Benz and Audi is likely to advance NVDA’s presence in the autonomous vehicles and other automotive electronics space.
NVIDIA has an expected revenue and earnings growth rate of 53.1% and 61.5%, respectively, for next year (ending January 2025). The Zacks Consensus Estimate for next-year earnings has improved 19.4% over the last 30 days.
Intel Corp. (INTC - Free Report) designs, develops, manufactures, markets, and sells computing and related products worldwide. INTC operates through the Client Computing Group, Data Center and AI, Network and Edge, Mobileye, Accelerated Computing Systems and Graphics, Intel Foundry Services, and Other segments.
INTC mainly offers platform products, such as central processing units and chipsets, system-on-chip and multichip packages, accelerators, boards and systems, connectivity products, and memory and storage products.
Intel has an expected revenue and earnings growth rate of 13.5% and 97.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 13.9% over the last 60 days.
ServiceNow Inc. (NOW - Free Report) has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. NOW’s expanding global presence, solid partner base and strategic buyouts are positives.
New solutions — Automated Service Suggestions, Service Request Playbook and Workplace Scenario Planning — are helping NOW win new customers. An expanding portfolio with new generative AI solutions is expected to drive top-line growth for NOW.
ServiceNow has an expected revenue and earnings growth rate of 20.6% and 22.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 8.1% over the last 60 days.
CrowdStrike Holdings Inc. (CRWD - Free Report) is benefiting from the rising demand for cyber-security solutions owing to the slew of data breaches and the increasing necessity for security and networking products amid the growing hybrid working trend. Continued digital transformation and cloud-migration strategies adopted by organizations are the key growth drivers.
CRWD’s portfolio strength, mainly the Falcon platform’s 10 cloud modules, boosts its competitive edge and helps add users. Additionally, strategic acquisitions, like that of Humio and Preempt, are expected to drive growth for CRWD.
CrowdStrike has an expected revenue and earnings growth rate of 28.2% and 23.9%, respectively, for next year (ending January 2025). The Zacks Consensus Estimate for next-year earnings has improved 5.2% over the last 30 days.
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Fed Ensures a Tech Rally Yet Again in 2024: 5 Top Picks
The Fed set the stage for this year’s Santa Claus rally in mid-December after its latest FOMC meeting. U.S. stock markets have soared amid a clear indication from the central bank that the current interest rate hike cycle, which elevated the Fed fund rate to a 22-year high of 5.25-5.50% from 0-0.25% in March 2022, finally ended.
Moreover, the December FOMC meeting dot-plot has shown that on average, Fed officials are expecting at least three rate cuts of 25 basis points each in 2024, followed by four more rate cuts of a full one percentage point in 2025.
The dot plot has also indicated three more rate cuts in 2026, which would take down the benchmark lending rate to the range of 2-2.25%. Following the Fed’s decision, the yield on the benchmark 10-Year U.S. Treasury Note fell less than 4% for the first time since March 2023. The yield topped more than 5% in October.
Fed officials currently expect core inflation to fall 3.2% in 2023, 2.4% in 2024, and then to 2.2% in 2025. Finally, it should decline to the 2% target in 2026. Despite rigorous interest rate hikes, the fundamentals of the U.S. economy remain strong.
On Dec 14, the Atlanta Fed the U.S. GDP to grow by 2.6% in fourth-quarter 2023, a notable improvement from the 1.2% estimated on Dec 7. This eliminates the fear of a recession in 2024 thereby boosting investors’ confidence in a possible soft landing for the U.S. economy.
Technology Sector to Benefit the Most
Buoyed by steadily decreasing inflation and a simultaneous reduction in the magnitude and number of interest rate hikes by the Fed, the technology sector has witnessed an astonishing rally in 2023. The impressive northbound journey of Wall Street this year after a highly disappointing 2022, has been predominantly driven by a tech rally.
Despite its higher valuation, the tech rally is likely to gather more pace in 2024 as a low market rate of interest always boosts growth stocks like technology. Investment in growth stocks creates wealth over a long period of time. A lower market interest rate will decrease the discount rate, which in turn will raise the net present value of investment. Moreover, many of these companies depend on the chip source of credit for the business to grow.
The tech rally in 2023 was led by a massive thrust toward artificial intelligence (AI), especially generative AI. The rapid penetration of digital technologies and the Internet worldwide during the lockdown period, ushered in significant adoption of AI.
Some financial and technology experts believe that AI is much-hyped and may lead to a bubble. We believe the AI-space has yet to unfold in the United States and international markets. Once that happens, it will generate huge business opportunities for technology companies producing high-end products.
Our Top Picks
We have narrowed our search to five technology behemoths (market capital > $50 billion) that have strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Meta Platforms Inc. (META - Free Report) is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is considered to have pioneered the concept of social networking.
However, as developed regions mature, Meta Platforms has taken measures to drive penetration in emerging markets of South East Asia, Latin America and Africa. Of all places, India deserves a-special mention in terms of user growth. The world’s second-largest populated country offers tremendous potential for META. With China off the radar, India can prove to be a terrific growth engine for Meta.
Meta Platforms has an expected revenue and earnings growth rate of 13.4% and 22.7%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.1% over the last 30 days.
NVIDIA Corp. (NVDA - Free Report) is gaining from the strong growth of artificial intelligence, high-performance computing and accelerated computing, which is boosting its Compute & Networking revenues. The datacenter end-market business is likely to benefit from the growing demand for generative AI and large language models using GPUs based on NVIDIA Hopper and Ampere architectures.
A surge in Hyperscale demand and a solid uptake of AI-based smart cockpit infotainment solutions are acting as tailwinds for NVDA. Collaboration with Mercedes-Benz and Audi is likely to advance NVDA’s presence in the autonomous vehicles and other automotive electronics space.
NVIDIA has an expected revenue and earnings growth rate of 53.1% and 61.5%, respectively, for next year (ending January 2025). The Zacks Consensus Estimate for next-year earnings has improved 19.4% over the last 30 days.
Intel Corp. (INTC - Free Report) designs, develops, manufactures, markets, and sells computing and related products worldwide. INTC operates through the Client Computing Group, Data Center and AI, Network and Edge, Mobileye, Accelerated Computing Systems and Graphics, Intel Foundry Services, and Other segments.
INTC mainly offers platform products, such as central processing units and chipsets, system-on-chip and multichip packages, accelerators, boards and systems, connectivity products, and memory and storage products.
Intel has an expected revenue and earnings growth rate of 13.5% and 97.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 13.9% over the last 60 days.
ServiceNow Inc. (NOW - Free Report) has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. NOW’s expanding global presence, solid partner base and strategic buyouts are positives.
New solutions — Automated Service Suggestions, Service Request Playbook and Workplace Scenario Planning — are helping NOW win new customers. An expanding portfolio with new generative AI solutions is expected to drive top-line growth for NOW.
ServiceNow has an expected revenue and earnings growth rate of 20.6% and 22.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 8.1% over the last 60 days.
CrowdStrike Holdings Inc. (CRWD - Free Report) is benefiting from the rising demand for cyber-security solutions owing to the slew of data breaches and the increasing necessity for security and networking products amid the growing hybrid working trend. Continued digital transformation and cloud-migration strategies adopted by organizations are the key growth drivers.
CRWD’s portfolio strength, mainly the Falcon platform’s 10 cloud modules, boosts its competitive edge and helps add users. Additionally, strategic acquisitions, like that of Humio and Preempt, are expected to drive growth for CRWD.
CrowdStrike has an expected revenue and earnings growth rate of 28.2% and 23.9%, respectively, for next year (ending January 2025). The Zacks Consensus Estimate for next-year earnings has improved 5.2% over the last 30 days.