2023 ended on a solid note for global tech stocks in what has been an impressive turnaround for the sector. Fueled by the artificial intelligence (AI) rally, tech stocks recovered most of the drawdowns from 2022. And despite the strong growth trends seen so far, we believe we are only in the first innings of the AI story.
With visibility improving into how much firms are going to spend on AI, we are raising our revenue growth forecast for the industry by 40%. We now expect revenues to grow about 15x during 2022–27, expanding from USD 28bn in 2022 to USD 420bn in 2027—a 72% CAGR. In particular, we see much more infrastructure spending (50% CAGR during 2022–27, rising from USD 25.8bn to USD 195bn), driven by emerging trends like GPU cloud and AI edge-computing. Also, with broadening AI demand and rising monetization trends, we see solid growth for AI applications & models (152% CAGR, increasing from USD 2.2bn to USD 225bn).
As a result, we believe AI will remain the key theme driving global tech stocks again in 2024 and the rest of the decade. In 2024, the semiconductor and software industries are well positioned to ride the AI wave, with both industries expected to post solid double-digit profit growth and operating margins of more than 30%, in our view. The rise of AI should drive further consolidation in global tech, where we believe the “big will get bigger” trend will benefit industry leaders with deep pockets and first-mover advantages. While global tech’s valuation of around 25x P/E is not cheap, falling rates and our 16% EPS growth forecast for 2024 should be supportive.
