It’s been lower than per week since Donald Trump received his second presidential time period … however his influence on the markets is unmistakable …
We’ve seen property hovering throughout the board since final Tuesday, with traders scrambling to cost within the actuality of Trump’s America for 2025.
Tesla (Nasdaq: TSLA) shares have soared by a fully huge 37% over the past week, and we’ve additionally seen a renewed spike of curiosity in crypto forex.
However what in regards to the market’s greatest tech mega development?
How will synthetic intelligence (AI) investments fare beneath Trump’s new regime?
In July, I launched you to the Tech Demand Indicator (TDI).
The indicator measures the intent of companies to spend cash on expertise.
Extra importantly, it breaks down what particular expertise companies have spent cash on now and sooner or later.
It’s a strong gauge of simply the place enterprise sentiment is relative to expertise.
It could actually additionally assist us spot tendencies in cash flows associated to rising expertise, buyer expertise apps, information facilities and the tech development of the final two years… synthetic intelligence (AI).
That means, we are able to slender down funding prospects based mostly on the place cash goes.
Because the newest TDI numbers had been simply launched, I wished to focus on some delicate surprises within the information.
Let’s break it down…
General Sentiment Rises … Stays Optimistic
After I initially appeared on the TDI for the second quarter of 2024, it registered a 51.6 studying, suggesting that spending within the expertise sector above companies will proceed to develop.
Any studying over 50 signifies extra bullish spending tendencies.
That consequence was buoyed by a rise in sentiment for AI expertise (i.e., AI chatbots, language fashions and facial recognition). The numbers confirmed that AI spending was pulling close to even with the demand for cloud and safety, manufacturing and software program/IT providers.
On the similar time, cloud infrastructure and knowledge safety noticed slight dips.
Let’s see what the third-quarter numbers are displaying now:
The Q3 2024 TDI reveals a slight enhance in tech sentiment, rising from 51.6 to 51.9. It’s not a large bounce, however a bounce nonetheless.
Ranges are nonetheless properly under This autumn 2022’s document stage — spurred by the discharge of ChatGPT in November of that 12 months.
The most important shock wasn’t the flattening of tech spending sentiment however extra the place companies are spending their cash.
Let me present you…
Is AI Nonetheless the King of Tech?
What drove Q2’s bounce in sentiment was the continued buzz round AI.
One quarter later … a swap.
After three straight quarters of constant sentiment will increase, the AI buzz has began to chill barely. The AI expertise part of the indicator declined 3.6 factors from 61.3 to 57.7.
However, info safety noticed a large enhance of 4.3 factors and cloud infrastructure and providers climbed 1.4 factors.
This means a short-term shift in greenback precedence associated to tech spending.
It additionally signifies corporations have began to understand the required infrastructure to implement large-scale AI tasks isn’t there … therefore a shift to pouring extra money into cloud infrastructure.
As an instance this, have a look at the capital spending of cloud suppliers like Microsoft:
Microsoft Corp. (Nasdaq: MSFT) is constantly rising AI providers to its Azure cloud platform.
Gross sales of AI providers inside Azure jumped 12 share factors from the earlier quarter to round $2.4 billion. It tells me Microsoft’s build-out of information facilities shouldn’t be by probability however quite to additional develop infrastructure, permitting the corporate to offer extra AI providers within the cloud.
One other instance is Oracle Corp. (Nasdaq: ORCL):
Consensus estimates recommend Oracle will proceed to extend its capital expenditure alongside its income.
Like Microsoft, the logic is straightforward: Enhance your cloud infrastructure to permit a rise in AI expertise and enhance cloud gross sales.
That is why there’s rising sentiment in cloud infrastructure and providers, in addition to info safety.
AI isn’t dying on the vine or something like that. Tech corporations are simply starting to understand they want rather more infrastructure in place earlier than AI can actually take off.
Consider it this manner: You’re constructing a city, and one of many first orders of enterprise is to put in water traces and electrical energy.
Do you solely set up sufficient water traces and electrical energy to deal with your present inhabitants, or do you add greater than you want with the intent of increasing your city sooner or later?
Savvy metropolis planners will let you know to do the latter … Higher to organize now for what you would possibly want sooner or later than get caught flat-footed.
AI will not be topping the spending charts anymore, however it’s definitely not lifeless… not by any means.
In actual fact, as corporations construct out the required infrastructure, Chief Funding Strategist Adam O’Dell and I consider there are going to be unbelievable alternatives to spend money on the subsequent wave of AI tech.
And also you’ll be a number of the first to find out about it right here in Banyan Edge.
That’s all from me at this time.
Till subsequent time…
Till subsequent time…
Protected buying and selling,
Matt Clark, CMSA®
Chief Analysis Analyst, Cash & Markets
