According to Zhitong Finance APP, CITIC SEC released a Research Report stating that the Fed's December monetary policy meeting decision triggered a significant adjustment in USA technology stocks, and some investors expressed caution and pessimism. The Fed's 'hawkish' shift in monetary policy more reflects the current resilience of the macro economy and the stickiness of inflation, and its impact on the market is mainly short-term disruptions, with fundamentals being the basis for the market's long-term trends. In the next 12 months, maintain an optimistic view on the USA stock technology Sector, with the Software Saas Sector being the top pick, while the Hardware & Semiconductors Sector focuses on GenAI opportunity Diffusion and the recovery of cyclical industries. The Internet Plus-Related Sector will focus on leading giants and high-elasticity sub-sectors (such as AD tech, Fintech, etc.).

The main points of the Citic Securities research report are as follows:

Background: Economic resilience & inflation stickiness led to the Fed's 'hawkish' shift and significant pullback in USA technology stocks.

Recently, the Fed announced its December monetary policy meeting decision, as the market previously expected a 25bps rate cut, but the dot plot indicates that there will be two rate cuts in 2025 (previously expected four), two in 2026, and one in 2027, with the terminal rate at 3.125% (previously expected at 2.875%). The degree of 'hawkishness' significantly exceeded previous market expectations, leading to a dramatic shake-up in US equity assets. The Nasdaq index, which is primarily composed of technology stocks, dropped by 3.56% on Wednesday, and the VIX Index, which reflects market volatility, also surged, causing some investors to have concerns about the outlook for USA technology stocks.

CITIC SEC determines that the gradual slowing of the Fed's rate-cutting pace reflects the current resilience of the USA economy and inflation stickiness. In the short term, the market cannot 'fight against the Fed', and the market disruptions and fluctuations caused by the resetting of Fed monetary policy expectations are unavoidable. In the medium term, the market trends of the USA stock technology Sector will more depend on its own performance, including macroeconomic and industry operation cycles. Based on the determination of continuous performance improvement in the sector, maintain an optimistic view on the USA stock technology Sector in the next 12 months, while also expecting that the high volatility in the market since 2023 will continue. However, the subsequent market style is expected to be more balanced compared to 2024, and the market 'breadth' is also expected to expand significantly, requiring patience in finding individual stock α returns.

Software Saas: The recovery in corporate IT spending and the accelerated introduction of GenAI make it the top pick for the USA stock technology Sector in 2025.

The resilience of the macro economy in the USA, along with the removal of policy uncertainties after the election, shows slow recovery signs in corporate IT spending. Although the pace of the Fed's rate cuts has slowed, corporate funding costs remain on a downward trend, and the easing of regulatory policies will also help restore the operational confidence of small and medium enterprises. At the same time, Agent-driven AI + software monetization is expected to accelerate in 2025. Coupled with the currently highly attractive valuation levels of the sector [6.5X EV/S (NTM)], the Software Saas Sector is considered the first choice for investment in the USA stock technology Sector in 2025.

Focus on the following: 1) Application software, companies with low valuations and rapid AI Agent integration; 2) Basic software, pay attention to demand elasticity, the balance of growth and profitability, focusing on keywords such as consumption, SMB, data management, IT operations; 3) Information security, pay close attention to firewall hardware cycle updates in 2025.

Hardware & Semiconductors: Focus on two main lines: the diffusion of GenAI opportunities and the cyclical industry recovery.

Currently, the global semiconductor industry is still in the mid-upturn of the cycle. Affected by Consumer Electronics, the fundamentals of the global semiconductors & Hardware are expected to remain weak from Q4 2024 to Q1 2025, and start to recover upward from Q2 2025. Similar to 2024, GenAI is expected to continue being the core driving force, but industry opportunities are expected to continue diffusing around NVIDIA. Attention is also needed on: the recovery pace of IT spending by European and American enterprises after the USA elections, the pull of edge AI and Windows 10 EOL on Consumer Electronics and bulk storage chips, as well as the recovery process of Autos & Industrial Sectors that are at the bottom of the cycle. Tariffs & trade policies, USA macroeconomic & inflation data, and progress in GenAI technology are expected to continue to be core influencing variables in the industry.

In terms of subdivided sectors, CITIC SEC prefers the following order: advanced process, AI networks (Ethernet equipment & high-speed interfaces), AI computing chips (ASIC, commercial GPU), AI servers, enterprise IT equipment (network equipment, high-end storage, general servers), Consumer Electronics (PCs, mobile phones), analog chips, semiconductor equipment, bulk storage chips, mature processes, etc.

Internet services: The performance boom cycle continues to rise.

The resilience of the macroeconomic environment, combined with the operational efficiency brought by the continued introduction of GenAI technology, suggests that the performance boom cycle for the USA Internet sector is likely to continue rising, reflected in online advertising, e-commerce, streaming media, local life, and financial technology sectors. However, tariffs imposed by the Trump administration & industry regulatory policies, inflation data, and AI technology progress are expected to continue to be ongoing disruptive variables that require close attention. At the individual stock level, leading Internet giants will still be foundational configurations. Meanwhile, considering the penetration of GenAI technology and relaxation of industry regulation, moderate increases in the allocation to small and mid-cap stocks in advertising technology and financial technology are recommended to enhance portfolio flexibility.

Investment Suggestions

The Federal Reserve's 'hawkish' shift in monetary policy reflects current macroeconomic resilience and inflation stickiness, mainly affecting the market as short-term disturbances; the fundamentals are the basic factors for the medium- to long-term trend in the market. Over the next 12 months, the optimistic outlook for the USA technology sector is maintained, with Software SaaS regarded as the preferred allocation for the sector. However, with the continuation of market volatility and the gradual improvement in market 'breadth,' a 'watch more, act less' approach should be adopted while continuously focusing on the exploration of individual stock opportunities.

Risk Factors

Risks of re-inflation in the USA economy; risks of global geopolitical conflicts and trade tariffs; risks of global economic downturn exceeding expectations; ongoing tightening of regulations in the Technology Industry; risks of AI technology progress not meeting expectations; risks of loss of key technologies and talent in companies.