It’s been less than a week since Donald Trump won his second presidential term … but his impact on the markets is unmistakable …
We’ve seen assets soaring across the board since last Tuesday, with investors scrambling to price in the reality of Trump’s America for 2025.
Tesla (Nasdaq: TSLA) shares have soared by an absolutely massive 37% over the last week, and we’ve also seen a renewed spike of interest in crypto currency.
But what about the market’s biggest tech mega trend?
How will artificial intelligence (AI) investments fare under Trump’s new regime?
In July, I introduced you to the Tech Demand Indicator (TDI).
The indicator measures the intent of businesses to spend money on technology.
More importantly, it breaks down what specific technology businesses have spent money on now and in the future.
It’s a solid gauge of just where business sentiment is relative to technology.
It can also help us spot trends in money flows related to emerging technology, customer experience apps, data centers and the tech trend of the last two years… artificial intelligence (AI).
That way, we can narrow down investment possibilities based on where money is going.
Since the latest TDI numbers were just released, I wanted to highlight some subtle surprises in the data.
Let’s break it down…
Overall Sentiment Rises … Remains Positive
When I initially looked at the TDI for the second quarter of 2024, it registered a 51.6 reading, suggesting that spending in the technology sector above businesses will continue to grow.
Any reading over 50 indicates more bullish spending tendencies.
That outcome was buoyed by an increase in sentiment for AI technology (i.e., AI chatbots, language models and facial recognition). The numbers showed that AI spending was pulling near even with the demand for cloud and security, manufacturing and software/IT services.
At the same time, cloud infrastructure and information security saw slight dips.
Let’s see what the third-quarter numbers are showing now:
The Q3 2024 TDI shows a slight increase in tech sentiment, rising from 51.6 to 51.9. It’s not a massive jump, but a jump nonetheless.
Levels are still well below Q4 2022’s record level — spurred by the release of ChatGPT in November of that year.
The biggest surprise wasn’t the flattening of tech spending sentiment but more where businesses are spending their money.
Let me show you…
Is AI Still the King of Tech?
What drove Q2’s jump in sentiment was the continued buzz around AI.
One quarter later … a switch.
After three straight quarters of consistent sentiment increases, the AI buzz has started to cool slightly. The AI technology section of the indicator declined 3.6 points from 61.3 to 57.7.
On the other hand, information security saw a sizable increase of 4.3 points and cloud infrastructure and services climbed 1.4 points.
This indicates a short-term shift in dollar priority related to tech spending.
It also indicates companies have started to realize the necessary infrastructure to implement large-scale AI projects isn’t there … hence a shift to pouring more money into cloud infrastructure.
To illustrate this, look at the capital spending of cloud providers like Microsoft:
Microsoft Corp. (Nasdaq: MSFT) is consistently increasing AI services to its Azure cloud platform.
Sales of AI services inside Azure jumped 12 percentage points from the previous quarter to around $2.4 billion. It tells me Microsoft’s build-out of data centers is not by chance but rather to further develop infrastructure, allowing the company to provide more AI services in the cloud.
Another example is Oracle Corp. (Nasdaq: ORCL):
Consensus estimates suggest Oracle will continue to increase its capital expenditure alongside its revenue.
Like Microsoft, the logic is simple: Increase your cloud infrastructure to allow an increase in AI technology and increase cloud sales.
This is why there’s rising sentiment in cloud infrastructure and services, as well as information security.
AI isn’t dying on the vine or anything like that. Tech companies are just beginning to realize they need much more infrastructure in place before AI can really take off.
Think of it this way: You are building a town, and one of the first orders of business is to install water lines and electricity.
Do you only install enough water lines and electricity to handle your current population, or do you add more than you need with the intent of expanding your town in the future?
Savvy city planners will tell you to do the latter … Better to prepare now for what you might need in the future than get caught flat-footed.
AI may not be topping the spending charts anymore, but it’s certainly not dead… not by any means.
In fact, as companies build out the necessary infrastructure, Chief Investment Strategist Adam O’Dell and I believe there are going to be incredible opportunities to invest in the next wave of AI tech.
And you’ll be some of the first to know about it here in Banyan Edge.
That’s all from me today.
Until next time…
Until next time…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets