(Reuters) - BofA Global Research raised its earnings forecast for the S&P 500 on Tuesday, projecting a 12% increase in profit for the companies in the benchmark index this year.

The brokerage raised its 2024 earnings per share (EPS) forecast for the index companies to $250 from the previously expected $235.

BofA strategists said that "2023 was a transition year for Corporate America, and companies have now adjusted to the new higher rate and tepid demand environment."

The brokerage expects technology giants such as Microsoft ( MSFT ), Amazon ( AMZN ), Alphabet, and META to spend $180 billion on capital expenditure this year, potentially benefiting from a "virtuous cycle" stemming from investments in artificial intelligence (AI).

"Semis and networking are the most obvious beneficiaries, but increased power usage and the physical build-out of data centers will lead to more demand for electrification, utilities, commodities, etc," strategists led by Ohsung Kwon and Savita Subramanian wrote in a note.

As big tech enters an investment cycle and traditional companies cut costs, the growth differential should merge between tech companies and the rest, the brokerage added.

The brokerage noted that demand recovery will be the key driver of earnings through 2025 and further margin expansion.

Earlier in March, BofA raised its S&P 500 target for this year to 5,400 points, joining other major brokerages in predicting the index would end 2024 in a range of 5,200 to 5,400.