The United Nations has designated 2025 As the year of quantum science and technology, emphasizing the significant influence that upcoming technological developments are set to exert on global society.
The growing presence of artificial intelligence (AI) within numerous sectors has led to considerable financial backing for this field during the past couple of years, with major technology companies leading the charge. With AI still developing rapidly, many financiers are contemplating whether 2025 might mark a crucial point where these expenditures start yielding substantial gains.
The Investing News Network explores how artificial intelligence influences stock market evaluations and revolutionizes various sectors, highlighting crucial trends and advancements that define AI’s future trajectory.
What impact will artificial intelligence have on the stock market by 2025?
2024 saw worries regarding the supremacy and elevated valuations of the tech giants. Magnificent 7 Heading into 2025, investors are closely monitoring the impact these companies will have on the overall stock market.
Citigroup (NYSE: C ) analysts have a generally positive outlook For 2025, noting that the Magnificent 7 aren't being traded at record-high valuations ; rather, the other S&P 500 (INDEXSP: .INX ) shares are more susceptible to risks.
In essence, the U.S. stock market is currently valued as though everything will go perfectly, which makes it vulnerable to a downturn due to increasing interest rates, lower-than-expected profits, or an overall economic deceleration.
For its part, BNY asserts The Magnificent 7 might potentially be underestimated when considering their future growth prospects. Despite recognizing the all-time high profit margins within the technology industry, the company argues that these stocks are less expensive compared to historical precedents set during comparable phases of technological progress throughout the broader market.
Moreover, the anticipation of sustained improvement in profit margins and earnings growth driven by continuous advancements in artificial intelligence underpins the idea that technology stocks have additional room for upward movement.
AI juggernaut NVIDIA's ( NASDAQ : NVDA ) consistent profits highlight its strong market standing and capability to effectively leverage the increasing demand for its offerings.
Goldman Sachs (NYSE: GS Analysts think the Magnificent 7 will keep outshining the broader S&P 500 in 2025, though their edge will be just 7 percentage points, which is the smallest margin in seven years. The company believes several aspects, such as macroeconomic conditions including U.S. economic expansion and trade policies, will benefit what they refer to as the "S&P 493."
David Rosenberg, who established the independent research company Rosenberg Research and Associates, stated to The Globe and Mail On December 5, he changed his viewpoint regarding the US stock market.
Instead of concentrating on the causes behind its overvaluation and bearish signals, his approach is to grasp the fundamental elements influencing the market’s actions during the last couple of years.
“He indicated that the market suggests we’re experiencing a ‘Paradigm Shift’ regarding future expansion and earnings. He noted that conventional metrics such as P/E ratios tend to look backwards and might not suffice under these conditions. Presently, investors prioritize long-term prospects, especially within sectors like artificial intelligence, and they're ready to invest more heavily in them. While the present boom in AI appears similar to the dot-com bubble, it could require several years before we can verify this.”
He mentioned that reductions in interest rates by the US Federal Reserve would bolster higher valuations.
BNY cites historical evidence indicating that periods of relaxed monetary policy usually align with economic expansion. Since 1984, they've observed approximately 16.5% growth during the year after interest rates were initially reduced. The firm anticipates that S&P 500 earnings growth could range from 10 to 15 percent in 2025, projecting the index might hit about 6,600 by then. Despite being less robust than anticipated for 2024, these projections still point towards ongoing development.
Although Rosenberg acknowledges short-term concerns like the softness in the U.S. job market and the potential for profit-taking and portfolio adjustments, he stressed the significance of maintaining flexibility in mindset when we reach 2025.
In his view, it's key for investors to learn from the mistakes of the past year, such as overreacting to short-term volatility and underestimating the potential of transformative technologies.
Profits take center stage as AI enhancement pace decelerates
As major tech companies invest billions into artificial intelligence research, the issue of whether these efforts will become profitable by 2025 remains uncertain.
Google (NASDAQ: GOOGL ) is focusing on achieving long-term AI supremacy rather than immediate profits. The firm’s substantial investment in artificial intelligence illustrates this strategy. anticipated to persist into 2025 , which could affect short-term income expansion.
Similarly, Meta (NASDAQ: META ) is significantly increasing its investments in AI, with a projected US$1 billion increase for capital expenditures in the year 2024. CFO Susan Li acknowledged During the company's third-quarter earnings call this year, it was stated that both depreciation and operational costs will increase next year as Meta scales up its AI infrastructure and broadens its product range.
In general, the state of artificial intelligence in 2025 will largely depend on whether major technology companies can fulfill their grand pledges. Recent analyses indicate that the pace of advancement in AI is a key factor. may be slowing down . Various AI investors, startup founders, and company CEOs told TechCrunch in November The emphasis could move towards enhancing efficiency and developing tailored AI solutions.
Testing-phase computation, providing AI models additional time to "process" prior to responding to a query, arose during this new epoch By late 2024, we will address scaling laws. According to TechCrunch, these refer to the strategies and predictions that laboratories use to enhance the performance of their models.
This advancement has intensified a rising conviction—shared by specialists such as the CEO of Anthropic. Dario Amodei and OpenAI CEO Sam Altman —that artificial general intelligence (AGI) might be more imminent than initially thought.
Apart from the development of scaling laws, Konstantine Buhler from Sequoia Capital told Bloomberg News that 2025 is expected to be a peak year for AI agents These advanced software applications, which can execute tasks autonomously and make choices, hold the promise to transform our engagement with technology and streamline intricate procedures.
Although the revolutionary potential of artificial intelligence spans countless industries , the magnitude and schedule for significant returns still remain unclear as we explore this unfamiliar technological landscape.
Key advancements in AI hardware and infrastructure to keep an eye on
No matter what the precise schedule or characteristics of AGI turn out to be, one fact remains clear: the competition to create and implement sophisticated artificial intelligence is fueling an unquenchable appetite for high-performance computing resources, with major players rising to meet this challenge.
Although the large-scale cloud corporations will secure many upcoming financial gains from AI advancements, they continue to be in an investment phase," noted Nicholas Mersch, an associate portfolio manager at Purpose Investments, in his write-up. "Currently, these firms are making significant expenditures on semiconductor technology, data center facilities, and power resources. July market commentary note .
The expansion continues, and Big Tech’s most recent quarterly reports show no signs of an imminent reduction in infrastructure investment. This trend benefits major hardware companies such as Taiwan Semiconductor Manufacturing Company (NYSE: TSM ), NVIDIA and Broadcom (NASDAQ: AVGO ) for possibly greater short-term gains.
Goldman Sachs anticipates that investors' attention will transition from AI infrastructure to an extended "Phase 3" involving the implementation and profit generation from AI applications. The companies worth watching encompass software and service providers.
Lux Research highlights Two main approaches: the monopoly model and the "walled garden" strategy.
Firms such as NVIDIA, Meta, and Microsoft are adopting a monopolistic approach with the intent of securing a substantial portion of the market and extracting maximum value from a wide range of consumers. They face hurdles including fierce rivalry and the necessity to maintain affordable pricing.
Companies may opt for a "walled garden" strategy, akin to what Apple employs (NASDAQ: AAPL The ecosystem focuses on maintaining a smaller but highly involved user community. Companies can enhance the worth created for each user by offering advanced features and special content. However, this approach might struggle with reaching similar levels of expansion compared to the monopoly model.
Investor takeaway
The prospects for the technology sector and the overall stock market in 2025 are marked with cautious optimism.
It’s anticipated that AI will maintain its central position, as the competition for supremacy in artificial intelligence drives investment into both infrastructure and innovative developments. This scenario sets up major hardware and software companies for possible financial successes.
Nevertheless, the financial gains from AI investments remain uncertain. How well companies can adjust and take advantage of new possibilities will be essential for continued prosperity in the ever-changing environment of 2025.
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Securities Disclosure: I, Meagen Seatter, have no direct financial stake in any of the companies discussed in this piece.
Editorial Disclaimer: The companies Syntheia and Zero Candida Technologies are clients of the Investing News Network. Please be aware this piece does not contain any paid content.