AI, tech upgrade cycle are behind new market highs: Strategist

The tech sector has been driving major market gains, pushing the S&P 500 (^GSPC) and Nasdaq (^IXIC) to record highs this week. Oppenheimer chief investment strategist John Stoltzfus joins Morning Brief to analyze the rally and its momentum.

"We're all on the upgrade cycle because technology is deeply embedded in the lives of both business and consumers. It's not just about phones. It's people who have apps for airlines, newspapers, magazines, have recently gotten notice on older phones when they try to upgrade, 'sorry, your operating system needs to be upgraded,' and you find out your old phone or your old computer can't take it. It's time to get back to the electronics store," Stoltzfus explains.

The AI race has been a major catalyst for the tech industry, and Stoltzfus sees no signs of a slowdown: "It doesn't appear that technology in this AI story is approaching a level where it's going to stall. It looks like it's still morphing into other things, essentially, if you don't get onto a plateau, and that's sort of what happened in the tech bubble." As AI continues to push the sector to new heights, he expects to raise his year-end target for the S&P 500.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video Transcript

Rally in tech that we have seen because it's pushed the NASDAQ has pushed, pushed the S and P to record highs this week as excitement surrounding artificial intelligence really sweeps Wall Street yet again, the tech sector on track for its best week in about seven months.

For more.

We wanna bring in John Stolas.

He is Oppenheimer's Chief Investment strategist John, it's great to see you again.

So talk to me just about how you're looking at this excitement that we're seeing play out in a handful of these tech.

So names again and really what this signals for the broader market moving forward, right?

Well, great, great to be on Yahoo Finance, speaking with you and Brad today.

Uh I have to say when you look at this, what it really reminds everybody is we're all on the upgrade cycle because technology is deeply embedded in the lives of both business and consumers.

Uh It's not just about phones.

If uh people who have apps for airlines, newspapers, magazines have recently gotten notice on older phones when they try to upgrade, sorry, your operating system needs to be upgraded and you find out your old phone or your old computer can't take it.

It's time to get back to uh to the electronic store.

And uh probably some of the results that we saw at least from one company, I can't make mention specific names because I manage money but would indicate that electronic sales are not dead and we think they're likely to increase.

So this all looks like part and part part and part the fact when the genie comes back, when the genie comes out of the bottle, it doesn't go back in folks.

And so with that in mind, John, not talking specific names, but talking perhaps themes more broadly that we've seen prevail in the markets.

How, how much more legs do you think there is to this trade, especially within generative A is we've seen companies who have talked about it on earnings calls or announced some type of product or software update.

They've seem to be the beneficiaries.

Well, we'd have to say Brad, you know, the old adage of trees don't grow to the sky.

Uh uh It definitely will step in at some point.

But right now, it doesn't appear that the technology in this A I story is approaching uh uh uh a level where it's going to solve.

It looks like it's still morphing into other things.

Uh uh Essentially if, if you don't get on to a plateau and that's what happened in the tech bubble is it's sort of plateaued.

People were talking about we're gonna have a million eyeballs in so many years, but no profitability to them.

This is companies that are profitable that are growing and expanding and, and innovation is really taking hold.

That said, uh any catalyst that the Bears can find to uh uh to sell and take profits without FOMO, uh they'll do it.

And, you know, we had that for a while ago.

If you think of that company you were just talking about, that's now the largest uh in market capitalization uh uh on the S and P 500.

Just a few weeks ago, there were a whole bunch of people saying it was done and it wasn't done at all.

It was just ready to morph into the next chapter.

So we remain very positive on technology, communication services.

Uh We like industrials, uh but we also like financials and we think consumer discretionary is desperately oversold this year.

If you look at it from the lows of last year, it's still up very nicely.

Uh over 20%.

So it's just uh different sectors, get haircuts from time to time and pauses, but this appears to be a good time for, for equity buyers.

So John given that you have your year end target for the S and P is 5500 and here we are today just above 5400.

What I guess, what do you need to see in order to raise your target or be convinced it sounds like you are convinced that maybe the market's heading even higher this year.

Yes.

Uh John, I would have to say here that, uh, you know, when we came into the year, we were one of the highest on the streets.

It's not the highest.

I think some people say we were the highest.

We weren't paying a lot of attention to.

Exactly.

Were we the highest or not?

But we came in at 5200 after, had to raise it in the first quarter, raised to 5400.

And our discipline is we don't raise our target unless it, the S and P closes at or above our price target.

So it would appear imminent that we'll have to consider whether we're going to raise our target for year end, uh or not.

Uh Probably over the course of the next few days or next few weeks, depending upon how the market uh uh is treated uh by investors and traders.