Weak CPI Green Lights Tech

Buy the next dip in tech stocks even if it isn’t a large one.

Why?

We are priced in for 3 rate cuts of .25% at the next 3 Fed meetings, and the huge push for lower rates is putting a solid floor under tech stocks.

This is incredibly bullish for the short-term trajectory of tech stocks.

Tech stocks benefit the most from lower rates and historically, every time the Fed has initiated a new easing cycle, tech stocks lift off and defy gravity.

Even if the notion that inflation is going higher, all the market cares about is that inflation is less than expected and that is exactly what we saw with the latest CPI numbers clocking in at a 0.3% monthly gain—below the anticipated 0.4%—and a 3% annual rate against forecasts of 3.1%, the data painted a picture of inflation taming its wild side.

I won’t sit here and pretend like 3% and growing inflation is great for the economy, and getting slaughtered with the post-2020 inflation.

It’s causing the American consumer to balk at making expensive purchases, and that is an insidious problem to deal and in the longer-term.

For tech stocks, perpetually starved for cheap capital, this signals a green light for a year-end sprint.

I would be inclined to buy the dip on any great tech company that rolls out a weak forecast.

At its core, lower CPI readings recalibrate the monetary stars in tech’s favor.

High interest rates act like a chokehold on growth-oriented sectors, elevating borrowing costs and compressing valuations for companies whose fortunes hinge on future cash flows rather than current dividends.

Tech firms, often saddled with debt for R&D binges or acquisitions, thrive when the Fed dials back.

A rate cut slashes the discount rate applied to those distant earnings, inflating present values.

Lower yields make risky bets like AI infrastructure or cloud expansions more palatable, drawing capital from bonds into equities.

Historical precedents underscore this. Post-1995 rate cuts amid a soft landing, tech lagged initially but roared back as borrowing eased, mirroring today’s AI-fueled boom.

Fast-forward to 2024’s initial easing cycle: the Nasdaq surged 22% in the year following, outpacing the S&P 500.

Moreover, a dovish Fed narrative quells tariff jitters from geopolitical frictions, stabilizing supply chains for chipmakers.

Nvidia (NVDA), the AI overlord, tops the list as a strong candidate with its GPUs powering data centers – a lynchpin in the AI ecosystem. 

Rate cuts could unlock $1 trillion in enterprise AI spend by 2026, per analysts, as firms like Microsoft front-load infrastructure without yield drag.

Its moat in generative AI positions it as the ultimate rate-cut proxy.

Advanced Micro Devices (AMD) follows suit, a scrappier Nvidia challenger in CPUs and AI accelerators. Easing could halve interest expenses on its debt load, freeing cash for MI300X AI chip fabs.

This CPI thaw isn’t just data—it’s dynamite for valuations.

By the end of the year, expect the Nasdaq to make new records, rewarding bold bets on innovation over caution.