With the Federal Reserve expected to cut interest rates for the first time in four years, the AI sector – which is experiencing a dip – is primed for a significant rally, according to the CEO of a leading financial advisory and fintech.
The bullish prediction from Nigel Green of deVere Group comes as the US central bank’s Federal Open Market Committee is set to announce a rate cut, although analysts are split on whether it be the traditional 25-basis-point rate reduction, or whether the Fed will go for a supersized 50 bps cut?
“The artificial intelligence AI sector is expected to benefit from the Fed’s shift to monetary easing, opening the door to renewed growth, increased investment, and a surge in innovation,” said Green.
“Firms developing AI technologies, from machine learning to robotics, rely heavily on capital-intensive research and development (R&D) efforts.
“Lower rates will reduce financial constraints on companies focused on AI, enabling them to double down on innovation and scale up their operations. This could drive the next wave of breakthroughs in artificial intelligence, positioning the sector for sustainable long-term growth.”
Nvidia, a prominent player in the AI sector, serves as a bellwether for the industry’s potential resurgence.
Although the company’s stock has dipped in recent months amid macroeconomic uncertainty, its fundamentals remain solid.
Strong demand
Nvidia’s Q2 2024 earnings reflected strong demand for AI-related products, with revenue soaring 88% year-over-year to $13.51 bln. These results highlight the ongoing appetite for AI technologies, especially those focused on high-performance computing and machine learning.
Nvidia’s recent performance offers a glimpse into the wider AI sector’s strength.
AI’s rapid adoption across industries — from autonomous vehicles to financial services — has created immense demand for the hardware, software and services that support these technologies.
While Nvidia’s trajectory showcases the upside potential, “the entire AI ecosystem stands to benefit from the Fed’s policy shift, including startups, cloud service providers, and enterprises integrating AI solutions,” noted the deVere CEO.
Historically, growth sectors like AI outperform in low-rate environments as companies gain easier access to capital and investors seek high-growth opportunities.
With the Fed signalling a new monetary direction, investor sentiment towards AI companies is likely to improve.
Green explained that, “lower rates make growth stocks more attractive, and AI is one of the most exciting and promising growth sectors out there. The innovations happening in AI today will shape the future across nearly every industry, from healthcare and transportation to manufacturing and education.
Breathing room
“The Fed’s rate cut gives the sector the breathing room it needs to expand at an even faster pace.”
He added that now could be an ideal time to buy AI-related stocks, “as they are currently experiencing a dip”, offering investors “a valuable opportunity to enter at lower price points before the sector regains momentum.”
The artificial intelligence sector remains a key driver of technological progress in the global economy, with demand for AI solutions growing at an unprecedented pace. Industries worldwide are leveraging AI to optimise operations, improve decision-making, and drive innovation, making AI a cornerstone of the Fourth Industrial Revolution.
Green concluded that, “with the Fed’s support, the AI revolution is poised to accelerate, delivering long-term value and reshaping industries worldwide.”
