Goldman Sachs managing director Kash Rangan sits down with Brian Sozzi and Madison Mills at the Goldman Sachs 2024 Communacopia & Technology Conference to discuss the top themes in tech and the sector's overall outlook.
Rangan argues that there are three important things for software companies at this juncture: interest rates, the election, and generative AI. He notes that the Federal Reserve will likely initiate a 25-basis-point cut at its September meeting, and will likely total between 325 and 350 basis points by the end of its easing cycle. Easing rates will bring down the cost of capital for businesses, and will serve as a "tailwind for existing customers to expand their deployments."
"With every economic cycle, as we come out of an economic cycle, coincidentally, there's always a new tech cycle that also goes with it," Rangan tells Yahoo Finance. He explains that after the 2008 recession, tech companies came out with cloud products, which eventually became "the catalyzing force for the tech industry."
He notes that for real growth, there needs to be innovation alongside economic improvement: "It's not as easy as saying lower rates are good. I mean, they're kind of the first lift. It's the primer. The next thing, it has to be followed by real innovation."
Rangan adds that after the 2024 presidential election in November, there will be less uncertainty: "It's not important to nail what the new policies are going to be, but it's more important to have less uncertainty and more certainty about what those policies are," he says, which indicates companies may move forward with projects it put on the backburner during peak uncertainty.
Finally, Rangan believes generative AI will be a long-term theme for the tech sector. "I am very bullish how it unfolds eventually in the long term. But if you're looking for proof points today, there's a scattering of proof points, but not enough to get conviction that this is going to be a thing in '25 or '26."
Catch more Yahoo Finance coverage and interviews from the Goldman Sachs Communacopia & Technology Conference.
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