TLDR
- Tech stocks have rebounded recently, but options traders remain cautious
- The cost of hedging against volatility in Nasdaq 100 ETFs is high compared to S&P 500 ETFs
- Wedbush analysts predict significant gains for tech stocks due to the AI revolution
- Nvidia’s upcoming earnings report on August 28 is seen as a critical moment for tech investors
- Walmart has provided a real-world example of how AI is benefiting its business operations
The technology sector has recently staged a comeback after a brief selloff earlier this month, but options traders are still showing signs of caution. This mixed sentiment comes as the artificial intelligence (AI) revolution continues to drive optimism in the tech industry, with major companies reporting tangible benefits from AI implementation.
The S&P 500 Index has recovered about three-quarters of its losses since its July high, with tech stocks leading the charge. However, the cost of contracts hedging against volatility in the Invesco QQQ Trust Series 1, which tracks the Nasdaq 100 Index, remains elevated compared to similar contracts for the SPDR S&P 500 ETF Trust. This suggests that traders are still wary of potential volatility in the tech-heavy Nasdaq.
Irene Tunkel, chief US equity strategist at BCA Research Inc., noted,
“People are becoming a little bit more jittery. The questions aren’t going to disappear. We expect to see more volatility from here.”
Despite these concerns, some analysts remain bullish on the tech sector’s prospects. Wedbush analysts believe that the Nasdaq and tech stocks are poised for significant gains heading into year-end, driven by the accelerating AI revolution. They argue that recent earnings reports from major tech companies have “further solidified the AI tidal wave of spending is coming to the shores of the rest of the tech world.”
The analysts highlighted the strong performance of cloud services from companies like Microsoft, Google, and Amazon, predicting that more enterprises will adopt cloud and AI solutions in the next 12 to 18 months. They also pointed to AI momentum from companies such as ServiceNow and Palantir as further validation of this trend.
A critical moment for tech investors is approaching with Nvidia’s earnings report scheduled for August 28. Nvidia, whose CEO Jensen Huang is described by Wedbush as the “Godfather of AI,” is expected to provide insights into the demand trajectory for AI chips through 2025. The company’s stock has already surged more than 150% this year, reflecting high expectations for its AI-related business.
However, the cost of hedging against potential declines in Nvidia’s stock has increased compared to the period before its last earnings report, indicating some nervousness among investors. Steve Sosnick, chief strategist at Interactive Brokers, commented,
“That implies risk aversion. If ahead of the last earnings release people were more afraid of missing a rally, now they are a bit more nervous about downside.”
While some investors remain skeptical about the ability of companies to monetize AI technology, recent developments have provided concrete examples of AI’s impact on business operations. Walmart, in its recent quarterly conference call, detailed how it’s leveraging AI in its supply chain management and product catalog systems.
The retail giant reported that AI has allowed it to manage over 850 million pieces of data more efficiently, improving inventory management and customer experience.
Walmart stated that without generative AI,
“this work would have required nearly 100 times the current head count to complete and the same amount of time.”
This real-world example of AI’s benefits may help alleviate some concerns about the technology’s practical applications.
As the tech sector navigates this period of AI-driven growth and market volatility, investors will be closely watching upcoming events such as the Jackson Hole economic symposium and Nvidia’s earnings report.
These events could provide further insights into the trajectory of both the broader economy and the AI revolution, potentially influencing the next moves in tech stocks.
