AI Boom to Stay
The AI boom will continue to fuel the rally in the broad market, with companies investing huge sums in the technology sector and beyond. The expansion of AI applications holds the promise of ushering in fresh growth opportunities. According to a new report by Grand View Research, the global artificial intelligence market is expected to witness a CAGR (2024-2030) of 36.6% to reach $811.75 billion by 2030.AI is bolstering electricity demand, as data centers require tons of energy for computing and cooling power. A simple ChatGPT task uses 10 times the energy a normal Google search does. So, data centers with a capacity of 30 megawatts are boosting capacity to handle 300 megawatts of power. This has made the traditional utilities sector of the market most appealing. Though technology seems to have become expensive, utilities remains an untapped area.Investors seeking to make the most of the next leg in the AI industrial revolution should consider utility stocks. Vistra Energy Corp. (VST – Free Report), having a Zacks Rank #1 (Strong Buy), is one of the best-performing stocks of the first half. The stock saw a solid earnings estimate revision of 47 cents for this year over the past month, with an estimated growth rate of 13.7%. Vistra Energy has a Growth Score of B, indicating that it is poised for more growth.
Race for Most Valuable Company
The “Magnificent Seven” is the biggest engine of growth for the technology sector and the S&P 500 as a whole. It now accounts for 31% of weightage in the S&P 500. The three stocks — NVIDIA (NVDA – Free Report), Apple (AAPL – Free Report), and Microsoft (MSFT – Free Report) — in the “Magnificent Seven” group are in a race to become the world’s most valuable company and hit a market capitalization of $4 trillion on surging enthusiasm over AI capabilities.NVIDIA has been at the forefront of building AI into its products and services. Its success is largely attributed to its leadership in developing advanced graphics processing units (GPUs), which are unmatched in producing processors that power artificial intelligence systems, including generative AI, the technology backing OpenAI’s ChatGPT that can create text, images, and other media. NVIDIA has a Zacks Rank #1 and a Growth Score of A.Apple, which was way behind its competitors in adopting AI, is finally catching up following the launch of the brand-new AI feature called Apple Intelligence at its recent Worldwide Developers Conference. The introduction of numerous AI-powered features is expected to kickstart the next upgrade cycle, enhancing the company’s performance and restoring investor confidence in Apple. Meanwhile, Microsoft has invested billions of dollars into AI in a bid to turbocharge its growth, particularly its cloud computing services, and is now reaping the fruits. About 65% of Fortune 500 companies are using the Azure service that delivers OpenAI’s technology to businesses. Demand for generative AI will continue to fuel Microsoft’s cloud business.Apple and Microsoft have a Zacks Rank #3 (Hold) each.
S&P 500 to Hit New Milestone
The S&P 500 is on track to record its best first-half performance during an election year since 1976, as well as the second-best performance in an election year in its history, according to Dow Jones Market Data. The index has achieved multiple records and gained at least 500 points in the first six months. The index topped the 5,500 level for the first time last week after hitting the 5,400 threshold earlier this month and 5,300 last month, underscoring strong confidence. It broke the milestones of 5,100 and 5,200 in February.Wall Street analysts continue to be bullish on the stock market. An analyst at Stifel expects the S&P 500 to reach the 6,000 mark before the end of 2024, up from just below 5,500, as investors keep piling in. This month, an analyst at Goldman boosted the year-end target price for the S&P 500 Index to 5,600 from 5,200 for the third time, citing an optimistic outlook for earnings growth and the U.S. economy.Meanwhile, Evercore ISI, one of the prominent bear analysts, turned bullish and raised its year-end S&P 500 price target from 4,750 to 6,000 — a new high on Wall Street. The analyst stated that the “AI revolution is in the early innings” and should lead to continued strength in earnings growth. Evercore ISI forecasts S&P 500 EPS growth of 8% and 5% in 2024 and 2025, respectively.Market veteran Ed Yardeni expects the bull market to roar further until the end of this decade, with the S&P 500 on track to hit 6,000 by the end of 2025 and 8,000 by the end of the decade. Tom Lee, the founder of Fundstrat, expects that the S&P 500 could hit 15,000 by the end of this decade.Investors seeking to tap the opportune moment should consider Hasbro Inc. (HAS – Free Report), which is engaged in the design, manufacture and marketing of games and toys. The company offers traditional, high-tech, and digital toys, games, and licensed products under various well-known brands. Hasbro saw a solid earnings estimate revision of 6 cents over the past 30 days for this year, with an estimated growth of 48.2%. It is cheap at a P/E ratio of 16.74 versus the industry average of 17.58. The stock has a Zacks Rank #1 and a VGM Score of B.
Rate Cuts in the Cards
In the latest FOMC meeting, U.S. policymakers penciled in one rate cut for this year and foresee four cuts for 2025. The Fed altered language in its statement, noting there has been “modest further progress toward the committee’s 2% inflation objective.” Previously, the statement pointed to a “lack” of further progress. Low rates reduce the cost of borrowing, which is often needed to finance the expansion of companies, thereby driving growth. This can positively impact sectors like real estate, consumer discretionary, and financial services, which are typically sensitive to interest rate changes. In real estate, lower rates can boost housing market activity by making mortgages more affordable. For consumer discretionary sectors, reduced borrowing costs can lead to increased consumer spending. In the financial sector, while lower rates can compress net interest margins for banks, they can also encourage lending and potentially lead to increased consumer and business loan activity.As a result, investors could bet on any of these sectors to magnify gains for the rest of the year. In particular, the most beaten-down stocks of the first half could outperform in the second half. One exciting option could be Macy’s (M – Free Report), which sells a range of merchandise, such as apparel and accessories for men, women, and kids, cosmetics; home furnishings, and other consumer goods under the Macy’s, Bloomingdale’s and Bluemercury brands.The stock is down about 9% so far this year but has the potential to move higher in the second half of the year, given its Zacks Rank #2 and a Value Score of A. Additionally, Macy’s saw a positive earnings estimate revision of 4 cents over the past 30 days for the fiscal year (ending January 2025).More By This Author:Best-Performing Stocks Of The Top ETF Of The First Half
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