Key Takeaways:
U.S. technology stocks are set to open at a new record high Tuesday, with futures for the Nasdaq 100 index pointing to a level above 18,000 as investors prioritize the sector's earnings power over persistent geopolitical risks from Iran.
"Memory remains core to our AI coverage, fitting with AI semiconductors, AI hardware, and hyperscalers," Ben Reitzes, an analyst at Melius Research, said in a note initiating coverage on Micron Technology. "The AI memory cycle is expected to continue through the decade’s end."
The move higher in tech contrasts with broader market weakness, as declines in healthcare, mining, and energy stocks pulled the S&P/TSX Composite down 0.2% in its last session. The CBOE Volatility Index (VIX) remains subdued near 14, while the 10-year Treasury yield holds steady at 4.5%. Technology and communication services were the top-performing sectors, while energy lagged as West Texas Intermediate crude futures hovered around $105 per barrel.
The divergence highlights a market increasingly concentrated in a handful of technology mega-caps, suggesting investors have a high tolerance for geopolitical risk when it comes to AI-related growth. All eyes will be on AppLovin's third-quarter earnings on Wednesday for the next read on the adtech sector's health.
Investor appetite for technology stocks appears insatiable, even as tensions in the Middle East show no signs of abating. Reports of small-boat attacks and drone strikes have failed to dent enthusiasm for a sector buoyed by the promise of artificial intelligence. This risk-on mood in tech stands in stark contrast to other parts of the market. For instance, Canadian stocks have struggled, with declines in mining and energy weighing on the TSX, which saw top performers like Fairfax Financial and Imperial Oil slip by more than 4%.
The bullish sentiment in tech is supported by strong analyst ratings. Melius Research recently initiated coverage of Micron (NASDAQ:MU) with a "Buy" rating and a price objective of $700, citing the durable demand for memory in the AI sector. This confidence was further bolstered by Micron's investment in SiMa.ai, a company specializing in Physical AI.
Within the tech sector, software and adtech companies are also demonstrating strength. AppLovin (NASDAQ: APP) shares gained 12% last month, bucking headwinds that have affected other software-as-a-service (SaaS) companies. The company's upcoming earnings report is highly anticipated, with analysts expecting a 19.6% increase in revenue to $1.78 billion. The stock's performance, supported by favorable analyst notes from Macquarie and Argus, indicates that investors are differentiating between various software business models in the current environment.
This article is for informational purposes only and does not constitute investment advice.
