Higher for longer interest rates and surging treasury bond yields have made investors, of all sectors, nervous. However, with increasing interest and innovations in AI and the cloud from tech giants – like Microsoft (MSFT) and Amazon (AMZN) – some investors are looking towards the tech sector for potential future profits. Wedbush Managing Director Scott Devitt joins Yahoo Finance to discuss what he thinks about opportunities in the tech sector despite worries of a recession.

Devitt defends his bullish outlook, saying “these companies have proven themselves in terms of continuing to be secular growth stories. We have another cycle that we’re in the first inning of in AI, and so we’re very optimistic on the group overall.” When it comes to companies that best stand to benefit from generative AI, Devitt points to Amazon and Alphabet (GOOGL, GOOG) are the clearest beneficiaries, but also companies like Booking Holdings (BKNG) which could benefit from how AI can enhance the company’s offerings.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: Surging bond yields are making investors nervous, including, of course, tech investors, but our next guest says he’s using the macro and Fed worries as a time to double down on his bullish tech thesis and not panic. Joining us now to talk about this is Scott Devitt from Wedbush. Scott, great to see you.

SCOTT DEVITT: Hey, Josh. How are you doing?

JOSH LIPTON: So, Scott, let me just start right with the big story for investors right now, those surging bond yields, and typically, of course, Scott, you would think that’s a headwind for tech, for growth-oriented stocks. Do you think tech stocks, can they work, Scott, against that backdrop?

SCOTT DEVITT: Probably not. I think that you’re going to need– you’re going to need, you know, the combination of rates and oil to decline and some, you know, less pressure on the economy to get growth stocks to really start to work again. In an environment where rates are rising, so the scenario in the segment that preceded me in terms of jobs report being strong, the economy remaining hot, you know, I think that’s a knee-jerk reaction that’s negative.

Even though a stronger economy for a long period of time could mean greater growth and greater profits for growth companies, I think just the surprise around that and the pricing end of that initially would be negative. But our view is that, ultimately, we’re closer to the end, very close to the end of the rate increases, and that when we get to the other side of that, whether that’s imminent or in coming months or coming quarters, it’s going to be a strong tailwind for growth stocks.

JULIE HYMAN: So in other words, Scott– it’s Julie here. In other words, even if there’s a little pain to come, if you’re interested in tech stocks, you should buy them here, wait it out, and then sooner rather than later, whether it’s weeks, months, you will have that rebound that you’re talking about.

SCOTT DEVITT: Well, I think coming out of the pandemic, you know, there was a case being made that that these large growth companies were at secular maturity, and you had a very weak year in 2022 for stock performance, and I think these businesses have proven that they’re resilient, that the underlying growth is still there, and that ’22 was more of a digestion period on the back of the pandemic.

And in addition to that, you have an AI cycle which is just beginning, and so I think that whether we go down first or we go straight up, we’re going up, because these companies have proven themselves in terms of continuing to be secular growth stories, and we have another cycle that we’re in the first inning of in AI, and so we’re very optimist on the group overall across my coverage and internet, as well as the broader tech team at Wedbush.

JOSH LIPTON: And, Scott, you mentioned there AI, and, of course, big tech’s been putting a lot of time, effort, and money into that technology. I’m interested, Scott, in your coverage universe, what are the names that you think are best positioned to monetize generative AI?

SCOTT DEVITT: So I think, first and foremost, it would be Amazon and Alphabet. You know, Amazon because of the cloud business and the ability to integrate services into their their cloud offering that corporates adopt that then creates a monetization cycle for AWS, and similarly Google’s compute engine as well in its business. So those two companies to me are the clearest beneficiaries of this next coming cycle.

But companies that are not quite as obvious like booking.com in terms of targeting and other features and functionality that can be expanded because of the use of large language models, I think that will come with time, but where we are in the cycle right now is NVIDIA is making all the money. Everyone’s buying the chips, and it’s going to go from the chips to the cloud providers figuring out how to monetize the use of those chips, and then in coming years, it’ll be more clear and evident which consumer companies benefit.

I have the the joy of covering companies like Amazon and Alphabet that cross over those two, so it will be the corporate enterprise side of Amazon and Alphabet that show it first, but when you look at the consumer businesses as well, in the latter portion of this cycle, I think you’re going to see their ability to monetize there as well.

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