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4 Mega-Cap Tech Stocks to Buy Ahead of Fed's September Rate Cut
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The much-awaited consumer price index (CPI) reading came out on Wednesday, showing monthly inflation increasing by 0.2% in August, in line with the consensus estimate after rising by a similar margin in July. This somewhat dented investors’ sentiment as many had been expecting a 50-basis point rate cut by the Fed in its September policy meeting.
However, the annual inflation rate fell to its lowest level since early 2021, which is being seen as positive news ahead of the rate cuts. Growth assets like tech stocks stand to benefit from lower interest rates. Given this situation, investing in mega-cap tech stocks like Micron Technology, Inc. (MU - Free Report) , Arista Networks, Inc. (ANET - Free Report) , Adobe Inc. (ADBE - Free Report) and AudioEye, Inc. (AEYE - Free Report) will be an ideal choice.
Stocks Rebound on Mixed Inflation Data
CPI increased 2.5% in August from the year-ago levels, the smallest year-over-year rise since February 2021 after a 2.9% rise in July. The monthly rise in CPI was driven by a 0.1% rise in food prices after increasing by 0.2% in June and July. The price of energy products also fell 0.8% in August.
Core CPI, which excludes the volatile food and energy prices, rose 0.3% sequentially in August, marginally higher than the consensus estimate of a rise of 0.2%. Year over year, core CPI increased 3.2%, which came in line with economists’ forecast.
Inflation has declined sharply from a 40-year high of 9.1% in June 2022 to 2.5% after the Federal Reserve increased interest rates by 525 basis points since March 2022. Slowing inflation has now made the Fed confident of proceeding with rate cuts.
Rate Cuts to Boost Stocks
The slight jump in inflation has dashed hopes of a 50-basis-point rate cut by the Federal Reserve in its Sept. 17-18 FOMC meeting. However, market participants are confident about a 25-basis point rate cut this month after Federal Reserve Chairman Jerome Powell said last month that rate cuts are on the horizon.
The Federal Reserve’s dovish stance comes as inflation has steadily been declining over the past few months and is on track to meet the Fed’s 2% target.
Tech Stocks to Benefit From Rate Cuts
The Wall Street rally, which started in 2023, has primarily been driven by tech stocks. This year, too, tech stocks have put up an impressive performance. The Technology Select Sector SPDR (XLK) has gained 13% year to date and 25.3% in the past 12 months. The tech-heavy Nasdaq has returned 17.8% year to date.
However, tech stocks have lately been suffering lately as investors have been shunning risky assets and settling for defensive and cyclical stocks on growing concerns of a slowing economy.
Wednesday’s CPI reading showed the inflation rate falling to its lowest level in 43 months, which sent tech stocks on a rally. The Nasdaq jumped 2.2% to close at 17,395.53.
Any size of rate cut bodes well for the broader economy. Lower interest rates generally benefit growth assets by decreasing the opportunity cost of holding non-yielding assets, such as technology and semiconductor stocks.
Tech Stocks With Growth Potential
We have chosen four stocks with a market cap of more than 50 billion that have seen positive earnings estimate revisions in the last 60 days and have strong potential for 2024. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Micron Technology, Inc.
Micron Technology, Inc. has established itself as one of the leading worldwide providers of semiconductor memory solutions. Through global brands, namely Micron, Crucial and Ballistix, MU manufactures and markets high-performance memory and storage technologies, including Dynamic Random Access Memory, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. Micron Technology’s solutions are used in leading-edge computing, consumer, networking and mobile products.
Micron Technology’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the last 30 days. MU currently carries a Zacks Rank #2.
Image Source: Zacks Investment Research
Arista Networks, Inc.
Arista Networks, Inc. is engaged in providing cloud networking solutions for data centers and cloud computing environments. ANET offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for the next-generation data center networks. Arista uses multiple silicon architectures across its products.
Arista Networks’ expected earnings growth rate for the current year is 18.7%. The Zacks Consensus Estimate for current-year earnings improved 4% over the past 60 days. ANET presently has a Zacks Rank #2.
Image Source: Zacks Investment Research
Adobe Inc.
Adobe Inc. is one of the largest software companies in the world. ADBE picks up licensing fees from customers, which form the bulk of its revenue. Adobe also offers technical support and education, which account for the balance.
Adobe has an expected earnings growth rate of 13 for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.1% over the past 60 days. ADBE presently has a Zacks Rank #2.
Image Source: Zacks Investment Research
AudioEye, Inc.
AudioEye, Inc. engages in creating cloud-based cross-platform/cross-browser screen reader solutions for web browsing. AEYE focuses on creating voice-driven technologies to enhance the mobility, usability, and accessibility of the Internet-based content in the United States. AudioEye develops patented, Internet content publication, and distribution software that enables the conversion of any media into accessible formats, as well as allows for real time distribution on any Internet-connected device.
AudioEye has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 27% over the past 60 days. AEYE presently sports a Zacks Rank #1.
Image Source: Zacks Investment Research
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4 Mega-Cap Tech Stocks to Buy Ahead of Fed's September Rate Cut
The much-awaited consumer price index (CPI) reading came out on Wednesday, showing monthly inflation increasing by 0.2% in August, in line with the consensus estimate after rising by a similar margin in July. This somewhat dented investors’ sentiment as many had been expecting a 50-basis point rate cut by the Fed in its September policy meeting.
However, the annual inflation rate fell to its lowest level since early 2021, which is being seen as positive news ahead of the rate cuts. Growth assets like tech stocks stand to benefit from lower interest rates. Given this situation, investing in mega-cap tech stocks like Micron Technology, Inc. (MU - Free Report) , Arista Networks, Inc. (ANET - Free Report) , Adobe Inc. (ADBE - Free Report) and AudioEye, Inc. (AEYE - Free Report) will be an ideal choice.
Stocks Rebound on Mixed Inflation Data
CPI increased 2.5% in August from the year-ago levels, the smallest year-over-year rise since February 2021 after a 2.9% rise in July. The monthly rise in CPI was driven by a 0.1% rise in food prices after increasing by 0.2% in June and July. The price of energy products also fell 0.8% in August.
Core CPI, which excludes the volatile food and energy prices, rose 0.3% sequentially in August, marginally higher than the consensus estimate of a rise of 0.2%. Year over year, core CPI increased 3.2%, which came in line with economists’ forecast.
Inflation has declined sharply from a 40-year high of 9.1% in June 2022 to 2.5% after the Federal Reserve increased interest rates by 525 basis points since March 2022. Slowing inflation has now made the Fed confident of proceeding with rate cuts.
Rate Cuts to Boost Stocks
The slight jump in inflation has dashed hopes of a 50-basis-point rate cut by the Federal Reserve in its Sept. 17-18 FOMC meeting. However, market participants are confident about a 25-basis point rate cut this month after Federal Reserve Chairman Jerome Powell said last month that rate cuts are on the horizon.
The Federal Reserve’s dovish stance comes as inflation has steadily been declining over the past few months and is on track to meet the Fed’s 2% target.
Tech Stocks to Benefit From Rate Cuts
The Wall Street rally, which started in 2023, has primarily been driven by tech stocks. This year, too, tech stocks have put up an impressive performance. The Technology Select Sector SPDR (XLK) has gained 13% year to date and 25.3% in the past 12 months. The tech-heavy Nasdaq has returned 17.8% year to date.
However, tech stocks have lately been suffering lately as investors have been shunning risky assets and settling for defensive and cyclical stocks on growing concerns of a slowing economy.
Wednesday’s CPI reading showed the inflation rate falling to its lowest level in 43 months, which sent tech stocks on a rally. The Nasdaq jumped 2.2% to close at 17,395.53.
Any size of rate cut bodes well for the broader economy. Lower interest rates generally benefit growth assets by decreasing the opportunity cost of holding non-yielding assets, such as technology and semiconductor stocks.
Tech Stocks With Growth Potential
We have chosen four stocks with a market cap of more than 50 billion that have seen positive earnings estimate revisions in the last 60 days and have strong potential for 2024. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Micron Technology, Inc.
Micron Technology, Inc. has established itself as one of the leading worldwide providers of semiconductor memory solutions. Through global brands, namely Micron, Crucial and Ballistix, MU manufactures and markets high-performance memory and storage technologies, including Dynamic Random Access Memory, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. Micron Technology’s solutions are used in leading-edge computing, consumer, networking and mobile products.
Micron Technology’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the last 30 days. MU currently carries a Zacks Rank #2.
Image Source: Zacks Investment Research
Arista Networks, Inc.
Arista Networks, Inc. is engaged in providing cloud networking solutions for data centers and cloud computing environments. ANET offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for the next-generation data center networks. Arista uses multiple silicon architectures across its products.
Arista Networks’ expected earnings growth rate for the current year is 18.7%. The Zacks Consensus Estimate for current-year earnings improved 4% over the past 60 days. ANET presently has a Zacks Rank #2.
Image Source: Zacks Investment Research
Adobe Inc.
Adobe Inc. is one of the largest software companies in the world. ADBE picks up licensing fees from customers, which form the bulk of its revenue. Adobe also offers technical support and education, which account for the balance.
Adobe has an expected earnings growth rate of 13 for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.1% over the past 60 days. ADBE presently has a Zacks Rank #2.
Image Source: Zacks Investment Research
AudioEye, Inc.
AudioEye, Inc. engages in creating cloud-based cross-platform/cross-browser screen reader solutions for web browsing. AEYE focuses on creating voice-driven technologies to enhance the mobility, usability, and accessibility of the Internet-based content in the United States. AudioEye develops patented, Internet content publication, and distribution software that enables the conversion of any media into accessible formats, as well as allows for real time distribution on any Internet-connected device.
AudioEye has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 27% over the past 60 days. AEYE presently sports a Zacks Rank #1.
Image Source: Zacks Investment Research