The Magnificent 7 tech stocks stole the show in 2023, driven particularly by the mass adoption of AI. Is tech still the way to go in 2024? Bailard Executive Vice President of Domestic Equities Dave Smith believes so, forecasting a broadening rally in tech.

2023 returns were heavily concentrated on AI, but that shouldn’t be expected as “we’re really going to see a broadening of that rally," Smith tells Yahoo Finance, also believing the rally will continue throughout 2024 and into 2025.

Bailard groups the US economy and the tech sector as having both gone through "a series of rolling recessions in the past 18 months."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: Good to see you. Let me ask you this, and we've been asking different strategies and analysts this question, and you're the one to have some unique insight here. So 2023, Magnificent Seven, it was the place to be. I think if you moved in those names 12 months ago, you're feeling pretty good and pretty smart. Do you think you stick with your winners? Do you stick with the Magnificent Seven in 2024?

DAVE SMITH: Yeah, great question. And thank you for having me. It's good to see you again. So with the backdrop that today was an interesting day on the market, I think that while tech indices have done quite well, returns have been very concentrated, and concentrated particularly in those winners, AI mega-cap stocks.

And our thesis is that, going into 2024 and 2025, we're really going to start to see a broadening of that rally. We started to see a little bit of that in Q4 and in December, and I think that continues in '24 and '25. And the rationale behind that thesis, is that outside of AI in those large-cap winners, you've really seen the economy, and tech in particular, go through a series of rolling recessions over the last 18 months. You can see it in the tech layoff data, you can see it in the companies that have been really impacted by optimization or budget tightening.

And our thesis is that now we're starting to emerge from that and come out on the other side. Budget growth-- IT budget growth looks fairly solid. We're hearing that there's a little bit of a return to normal in spending. So our focus is really on broadening the opportunity set. Looking at areas that maybe underappreciated, cyclical hardware, opportunities in area of software that have been disproportionately impacted by that year of efficiency. So consumption seat-based license models, for example, and we're always watching for risks, of course, but pretty optimistic right now on those areas and that broadening of that rally.