Falling Oil Prices Could Fuel Gains in Technology Stocks, According to Jefferies
As oil prices continue to decline, certain sectors of the stock market, particularly technology and consumer discretionary stocks, could emerge as unexpected beneficiaries. This insight comes from a recent analysis by Jefferies, a leading investment bank, which highlights that a softening crude oil price environment may act as a tailwind for U.S. equities beyond the energy sector.
Oil Price Trends: What’s Driving the Decline?
West Texas Intermediate (WTI) crude oil prices have slipped from approximately $80 per barrel in mid-January to around $68 per barrel in July 2025. Several dynamics are at play here:
- Geopolitical and trade tensions: President Donald Trump's global tariff conflict has created headwinds for commodity prices globally.
- OPEC+ production increases: The group’s recent decision to boost oil output has added to downward price pressure.
- Market sentiment and demand concerns: Weaker demand expectations amid economic uncertainties further weigh on prices.
Jefferies expects this trend of lower oil prices to persist in the near term, which could have ripple effects across various equity sectors.
Why Tech and Consumer Discretionary Stocks Could Shine
Intuitively, falling oil prices might suggest troubles for energy companies. But Jefferies points to a counterintuitive market effect: significant downturns in WTI prices often align with earnings per share (EPS) growth and strong share price performance in industries that are typically less sensitive to oil, such as technology and discretionary consumer goods.
"Lower energy costs can reduce expenses across the economy, freeing up spending and investment, particularly benefiting sectors reliant on innovation and consumer demand," explains an industry analyst familiar with commodity- equity correlations.
Stocks Positioned to Benefit: AMD, Datadog, and Zscaler
Jefferies has spotlighted specific companies that could outperform if oil prices stay subdued:
- Advanced Micro Devices (AMD): Despite already surging about 30% this year, AMD may have further upside potential. HSBC recently upgraded AMD to a buy rating with a target price of $200, up from $100, implying a 27% gain from recent closing levels. Analyst Frank Lee cites the anticipated launch of the MI400 series in 2026 and growing artificial intelligence (AI) revenue projections as key growth drivers not fully priced in by investors yet.
- Datadog: This cloud monitoring and security platform saw more modest gains of around 1% year-to-date but received an upgrade from Wolfe Research to an outperform rating. Analyst Alex Zukin highlights heightened optimism following a major industry event in New York City filled with AI-related announcements, suggesting the company is poised not just to recover but to accelerate gains.
- Zscaler: The cybersecurity firm's shares have jumped an impressive 60% this year. With strong growth momentum in new and upsell business models, Wells Fargo recently raised its rating to overweight with a $385 target price, approximately 33% above current levels. Analyst Andrew Nowinski points to improving unscheduled billings and forecasted 20%+ billings growth in fiscal year 2026 as catalysts.
Broader Market Implications and Hidden Narratives
The relationship between energy costs and stock performance underscores the complex interplay between macroeconomic factors and corporate earnings. Lower oil prices can enhance consumer spending power by reducing transportation and manufacturing costs, indirectly boosting sectors like technology that thrive on dynamic innovation and discretionary consumption.
However, it's essential to recognize potential risks: sustained low oil prices can hurt energy-related employment and revenues, potentially balancing out gains elsewhere in the economy. Additionally, geopolitical shifts or OPEC+'s supply decisions remain wild cards that could quickly reverse the current narrative.
Looking Ahead: What Investors Should Watch
- Oil price fluctuations: Monitor geopolitical developments and OPEC+ policy for sudden supply shocks.
- Technological innovation cycles: Track AI and cloud computing adoption rates, especially for companies like AMD and Datadog.
- Consumer discretionary trends: Watch for changes in consumer confidence and spending power amid evolving energy costs.
Editor's Note
Jefferies' analysis offers a compelling lens through which to understand the cascading effects of oil price dynamics on the broader stock market. While energy companies often capture immediate headlines with price swings, the nuanced benefits to tech and discretionary sectors reveal an important story of economic interconnectivity. Investors, policymakers, and observers alike should consider these cross-sector impacts when evaluating market risks and opportunities in an era marked by fluctuating commodities and rapid technological change.
Ultimately, the question remains: will the current low oil price environment sustain long enough to catalyze significant growth in these favored sectors, or will unforeseen geopolitical shifts reset the playing field? Staying informed and agile will be key in navigating this evolving landscape.
