The AI gold rush could spark a 15% rally in tech stocks through the rest of the year as firms shell out $800 billion in the arms race, Wedbush says

• The wave of spending on artificial intelligence could spark a 15% rally for tech stocks, Wedbush said.
• Analysts predicted that tech firms could shell out as much as $800 billion for AI ventures.
• "We view this as a '1995 Internet Moment' … NOT a 1999 Dot.Bubble Moment," the firm said in a note.

Tech firms could shell out billions in the artificial intelligence gold rush, potentially sparking a major tech stock rally through the second half of this year, according to Wedbush.

The firm expects tech companies to dramatically ramp up their spending on AI ventures over the next year, with AI spending across the sector potentially notching $800 billion, analysts said in a note on Monday.

Individual firms could increase their AI budgets to 8-10% of their total IT budget in 2024, up from the 1% estimated in 2023, the note added, pointing to a recent uptick in cloud spending among competitors like Google and Microsoft.

That coming AI "spending wave" could set up conditions for another major rally in tech stocks, adding to the sector's stellar performance this year amid the hype for ChatGPT.

"We see tech stocks heating up in 2H," analysts said, estimating that the sector could rally as much as 12-15% as firms scramble to invest in generative AI. "The 2nd, 3rd, and 4th derivatives of this AI Gold Rush are just starting to evolve for the tech landscape based on our recent work in the field and we view this as a '1995 Internet Moment' … NOT a 1999 Dot.Bubble Moment," the note added.

Microsoft, which expanded its partnership with ChatGPT creator OpenAI in January, could be one of the leading names in the space, with the stock potentially poised to gain 35%-40% over the next few years, Wedbush said. Other big firms participating in the AI movement include Nvidia, Google, Oracle, Meta, Amazon, and Salesforce.

"While bears continue to fret about tech valuations and the uncertain macro backdrop we believe this ultimately is the start of a new tech bull market we see heading into 2024 being driven by this AI revolution coupled with a stabilizing IT spending environment," Wedbush analysts said.

Other experts have been skeptical of Wall Street's excitement for AI, with some commentators suggesting that firms dabbling in the space are seeing their shares become overpriced. Bank of America called the AI boom in stocks a "baby bubble" -- and suggested it could be starting to deflate as investors sell tech shares.