The latest tech sell-off is a buying opportunity as earnings could power stocks 15% higher, Wedbush says

• The latest sell-off in tech stocks is a fresh buying opportunity for investors, Wedbush said.
• Tech earnings this season are expected to be strong as the AI frenzy continues.

Tech stocks are a strong buy after last week's drop, as a solid corporate earnings season could spark another double-digit gain for the sector by the end of the year, according to Wedbush.

Tech stocks sold off with the broader market last week, with the Nasdaq Composite sliding 0.6% as traders took in a hot consumer price index report and dialed back their expectations for Fed rate cuts. Inflation has come in hotter than expected for the last three months, causing investors to lower the odds of a June rate cut to 18%, according to the CME FedWatch tool.

But the earnings environment for tech companies still looks strong, Wedbush said, especially when considering the frenzy over artificial intelligence, which has sent tech stocks soaring over the past year. A strong earnings season could be a major positive catalyst for tech, the strategists added, predicting the sector could soar another 15% by the end of 2024.

"We believe the recent risk-off environment and tech sell-off represent a clear buying opportunity into this upcoming tech earnings season," strategists said in a note on Sunday. "While a hot CPI, weak bank earnings, and geopolitical worries has put pressure on stocks, now the Broadway stage and bright lights are focused on a key tech earnings season ahead which we believe will be strong across the board."

According to consumer surveys conducted by Wedbush, consumer spending trends are "strong" among internet companies over the first quarter. Digital advertising growth is also expected to be robust, they added, which will serve as bullish tailwinds for companies like Alphabet, Amazon, and Meta.

Meanwhile, AI spending looks on track to make up to 10% of firms' IT budgets this year, which will be a boon for companies like Microsoft and Palantir. Wedbush strategists are expecting $1 trillion of AI spending to hit the sector over the next decade, with the second, third, and fourth wave of spending to hit the sector over the coming years.

"Our myriad of field checks globally over the past month give us a high level of confidence that the AI Revolution monetization has now begun to hit its next gear of growth as the baton has been handed from semis to the software phase with use cases exploding across the board," the note added.

Investor sentiment on Wall Street soured last week as traders mulled the possibility of rates staying higher for longer. Just 43% of investors say they feel bullish on stocks over the next six months, according to the AAII's latest Investor Sentiment Survey.

Recession concerns have also climbed higher, as high rates risk overtightening the economy into a downturn. The US has a 58% chance of tipping into a recession by March 2025, according to the latest estimate from the New York Fed.

Stocks rebounded on Monday as investors shrugged off the geopolitical turmoil out of the Middle East and turned toward corporate earnings and fresh macroeconomic data.