US Fed rate cut to drive stocks of AI companies: Report

Stocks of AI companies are set to bounce as the US Fed Reserve gears up to cut interest rates, a report said on Wednesday.

The AI sector – which is experiencing a dip - is primed for a significant rally, according to Nigel Green of deVere Group.

“The 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,” Green predicted.

US central bank's Federal Open Market Committee (FOMC) 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-basis-point cut.

Companies developing AI technologies, from machine learning to robotics, rely heavily on capital-intensive research and development (R&D) efforts.

According to Green, 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.

Graphics chip giant Nvidia, a prominent player in the AI sector, serves as a bellwether for the industry's potential resurgence.

According to the report, although the company's stock has dipped in recent months amid macroeconomic uncertainty, its fundamentals remain solid.

The Fed's rate cut gives the sector the breathing room it needs to expand at an even faster pace, said Green.