AI development will remain a dominant force for the market: forecast
Over the past two years, the world has witnessed rapid AI development. It is finding applications in a wide range of sectors. Not surprisingly, products based on this technology are attracting increasing attention from investors. Innovations in the field of AI occupy an important place in the stock market and influence the formation of new trends.
In 2024, the growth of technology has helped strengthen IT companies, which have become the undisputed leaders of the Magnificent Seven. The position of cutting-edge companies has become stronger than ever, shifting the focus away from other sectors. Citigroup analysts have taken these trends into account in their stock market forecasts. They have also paid particular attention to the impact of AI on investment activity.
The US stock market remains a key market on the global stage, making it vulnerable to corrections caused by rising interest rates. In addition, the market is under pressure from the declining profitability of large companies and a global slowdown in economic growth.
Magnificent 7 outlook
Experts are interested in the outlook for the Magnificent 7 group, which includes key technology giants that set industry trends.
Their positions are regularly criticised for their dominance. However, analysts believe that the companies are currently undervalued, given their overall potential. The market is presently experiencing a leap in technological advancement. However, the Magnificent 7 is valued lower than at similar stages in the past. In addition, experts expect further earnings growth in the IT sector, driven by the growing demand for artificial intelligence.
According to Goldman Sachs, the market is expected to undergo such changes in 2025:
1. The Magnificent 7 will continue to dominate.
2. These companies will outperform the rest of the S&P 500 in terms of earnings growth, but the gap will be only 7 percentage points.
3. This difference will be the smallest in the last 7 years.
The other companies in the index will improve their market positions as the US economy strengthens. Changes in the country’s trade policy will also contribute to earnings growth.
Risks for investors
Many analysts believe that this year will be a landmark year for AI development. The groundwork laid in recent years provides a foundation for further growth and progress in the field, opening up new opportunities for the development of the technology and its applications.
However, experts also warn that traditional approaches to assessing market prospects and trends may not be appropriate. In particular, linking price to earnings may not accurately portray the true value of companies in this area. Investors should be prepared for possible disappointment if they focus on this indicator alone. Overall, the sector should be considered part of a long-term strategy. Experts also warn that the pursuit of high margins could lead to problems such as the formation of a bubble reminiscent of the dot-com era.
