Dan Ives’ top tech picks into year-end

Wedbush's Dan Ives remains bullish on AI-led tech names, naming Microsoft and Nvidia among his top picks and forecasting a "tidal wave" of AI spending despite Big Tech capex projected at $550–$600 billion for 2026. Ives argues the AI revolution is early (fewer than 5% of U.S. enterprises on an AI strategic path) and compares the opportunity to a 1996-style moment; his top five picks include Microsoft, Nvidia, Tesla, Palantir and AMD. Market reactions noted: Microsoft is up ~12% YTD with Bernstein reiterating outperform and a $645 target (≈26% upside), Nvidia slipped ~5% premarket on reports of Meta considering Google chips, Alphabet rose ~4%, and Mizuho kept an outperform on Tesla while trimming its target to $475 (≈14% upside).

Analysis

Market structure: The AI capex cycle (Big Tech $550–600bn for 2026 plus corporate/government waves) centrally benefits hyperscalers and GPU/accelerator suppliers (MSFT, NVDA, GOOGL, AMD, TSMC/ASML supply chain) while squeezing legacy on‑prem software/hardware vendors and margin-sensitive ad businesses. Expect durable pricing power for high-end GPUs and cloud compute with near-term supply tightness supporting premium pricing and elevated implied vol, and higher electricity/commodity demand (copper, power) for data centers.

Risk assessment: Tail risks include EU/US AI regulation and antitrust action (6–18 months), chip-capacity shocks (TSMC outages) and a demand pause if enterprise AI adoption stalls (currently <5% true strategic adoption). Immediate (days) moves will be news-driven (chip sourcing, earnings), short-term (3–6 months) driven by capex guidance, long-term (2–5 years) by actual enterprise ROI and robotics/autonomy ramp. Hidden deps: MSFT’s OpenAI exposure, Nvidia’s fab partners, and Meta/Google chip verticalization.

Trade implications: Favor concentrated long exposure to MSFT and managed NVDA exposure; overweight cloud/security infrastructure (MSFT, GOOGL, AMD) and semicap suppliers, underweight margin‑fragile ad/legacy software. Use options to buy convexity (long-dated calls/verticals) while selling short-term vol via covered calls on blue-chips. Entry: buy on pullbacks >5–7%; exits on 20–40% realized gains or policy/regulatory inflection.

Contrarian angles: Consensus underestimates concentration risk and OpenAI counterparty exposure for MSFT and overprices perpetual NVDA upside — NVDA could see share weakness if Google/Meta scale proprietary silicon (3–12 months). Historical parallel: the mid‑1990s tech adoption took years to monetize; expect long structural upside but episodic 20–50% drawdowns, so size positions accordingly and prioritize hedges.

Key Decisions for Investors

• Establish a 2–3% net long position in MSFT with a 12‑month horizon; add incremental 1% if stock pulls back >7% from current levels; implement 0.5% portfolio put protection (9‑month 3–5% OTM) to cap downside while retaining upside to a ~+25% target.
• Allocate 1–1.5% to NVDA via a 3–6 month call‑vertical (buy ATM call, sell 20% OTM) to capture upside convexity while limiting premium; exit or hedge if NVDA revenue guidance misses or share price drops >25% intramonth.
• Enter a relative value pair: long GOOGL 1.5% vs short META 1.0% for 3–6 months, anticipating Google’s potential chip wins and margin resilience vs Meta’s heavier capex/third‑party chip spend; close trade on announced multi‑$bn chip agreements or if spread narrows <5% absolute.
• Trim direct TSLA exposure by 50% if U.S. or China EV monthly deliveries decelerate two consecutive months YoY; redeploy 1–2% into semicap/infra (AMD, AMAT, TSMC exposure) where AI-driven capex is visible.
• Implement macro hedges: purchase 12–18 month S&P put spreads sized 1–2% of portfolio or increase bond duration hedge by 1–2% if Fed tightening surprises; actively monitor EU AI Act final text (6–12 months) and any DOJ/FTC filings (3–9 months) as triggers to increase regulatory hedges on affected names.