By Teresa Rivas

Tech stocks have been bouncing back in recent weeks, and look like they can keep going higher.

The Nasdaq Composite has recovered from its mid-November selloff, but is still roughly flat over the past month. That was largely because of growing investor concerns about the high cost of developing artificial intelligence -- to the point that even some of the world's most valuable companies are going into debt to do so -- as well as increasing competition, and execution risks, like Amazon.com's power issues in Oregon.

Yet Citigroup's Heath Terry writes that this should be seen as "a normal market adjustment" given how much enthusiasm pushed up stocks earlier in the fall, amid a spate of dealmaking. Instead of worrying about the catalysts that weighed on tech stocks last month, he believes investors should take heart from the continuing adoption of AI, which appears poised to fuel these stocks through 2026.

His research suggests that enterprise AI adoption is accelerating -- not just in terms of customer service chatbots and coding, but agentic AI being applied to white collar labor tasks. That might not be great news for workers, but it means "tens of thousands of individual agents built on model APIs being deployed in large-scale companies," he writes. "We expect to see this in further acceleration in aggregate hyperscaler revenues and backlog growth."

The upshot is that even though AI stocks have soared during this bull market, Terry still thinks investors are still underestimating AI's scale and potential -- a fact that will be increasingly obvious as increased AI use leads to huge cost savings and beyond.

"Put directly, consensus estimates for nearly every part of the ecosystem remain too low, in our view, particularly beyond 2026, and we expect next year to be spent raising estimates for most of these companies," he concludes, meaning "the stocks could begin to reflect the upside risks over the downside."

Analysts can be an optimistic bunch, so the fact that consensus estimates, which have continued to climb, have further room for expansion is a positive catalyst. In fact, average analyst price targets imply that U.S. big tech stocks -- the Magnificent Seven, with Broadcom swapped out for Nvidia -- are more attractive than the S&P 500 as a whole or its 10 largest non-tech holdings, writes DataTrek Research co-founder Jessica Rabe on Tuesday.

If those seven big tech companies (Amazon, Apple, Broadcom, Google parent Alphabet, Facebook parent Meta Platforms, Microsoft, and Nvidia) collectively reach their price targets, that would be a nearly 18% gain, whereas the average S&P 500 price target represents just over 16% upside, and its 10 largest non-tech holdings targets' are 12% above current levels.

Price targets also imply that Nvidia, Microsoft, and Amazon can see double-digit upside beyond their all-time highs, to the tune of 21%, 15%, and 16%, respectively.

Rabe writes that she takes "analysts' price targets with a grain of salt (as should you)," but given big tech's outsize weighting, more gains for those stocks "therefore have greater potential to drive the S&P 500 higher from here. We continue to believe that both the S&P 500 and Nasdaq Composite will make new highs by year-end."

Cheers to that.

Write to Teresa Rivas at teresa.rivas@barrons.com

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December 09, 2025 12:52 ET (17:52 GMT)

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