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Barring a few bumps along the road, there seems to be no stopping technology stocks this year, as the asset class has come charging back from a dismal 2022.
Lifted by an AI tailwind, the Nasdaq Composite
COMP,
has been hitting record after record, up around 28% year to date. Yet concerns linger that too many investors are chasing a handful of high-profile stocks.
Bank of America’s monthly fund manager survey, out Tuesday, revealed that “long big tech” —a bullish view on those major technology stocks — is considered more crowded than any other trade. That was also the case in May, but even more managers appeared convinced in June, based on the below chart:
However, a separate note from Citigroup strategists, also published Tuesday, appeared to cast some doubt over how hard investors have been piling in.
“Bullish positioning has grown for [the] S&P and Nasdaq in May as investors focus more on technology stocks, in particular a few A.I. related stocks. Our crowding analysis [below chart] shows that not all these stocks are most crowded, and crowding [is] often driven by long-term fundamentals in addition to multiple expansion,” said a Citi team led by Hong Li, head of quantitative equity trading.
As the above Citi chart shows, investors have piled into Apple
AAPL,
Microsoft
MSFT,
Nvidia
NVDA,
Alphabet
GOOGL,
and Meta Platforms
META,
but Amazon.com
AMZN,
and Tesla
TSLA,
remain somewhat still unloved in this regard.
“Macro risk in growth remains below its historical average and it is not crowded. Its valuation has moved higher but is still below the peak reached during the COVID-19 crisis,” said Li and his team.
Growth stocks — tech fits this bill because many companies are expected to deliver higher profit and revenue than average — are rate sensitive, so higher bond yields work against them, but have more muted exposures to oil, dollar and credit spreads, said Citi.
“All of these continue to bode well for its near-tern performance. The potential Fed rate skip this month and more positive surprises in [first quarter 2023] tech company earnings reports are tailwinds to growth performance as well,” said the Citi team.
The Nasdaq shot higher early Tuesday’s after in-line U.S. inflation data, with chances of a Federal Reserve interest-rate hike whittled down.
Growth stocks may also be better positioned in a recessionary environment, and they favor those over often cheaper value stocks or less volatile low beta names, said Li and his colleagues.
That echoes some of what JPMorgan’s chief global markets strategist Marko Kolanovic told clients in a note dated Monday. He said the recent move higher by cyclical value stocks that got investors excited about a more broader rally settling in is likely to fade.
He’s more positive on tech, but said the gains have been “extraordinary” and stocks overall are “set to face an increasingly challenging growth-policy tradeoff” in the second half.
Tech investor Cathie Wood has predicted Tesla could be one of the biggest beneficiaries of AI , though she just trimmed some holdings of the electric-car maker after its 12 straight winning session run on Tuesday, along with some Nvidia exposure. UBS, meanwhile, has referred to Amazon as a “sleepy AI” play that’s still in a prime spot to benefit from the technology.
Tesla shares are up 102% so far this year, with Nvidia up 170%. Meta is up 125%, while Apple, Microsoft and Alphabet are up 41%, 38% and 40%, respectively.
Read: Apple’s stock is no longer worth buying after reaching a record, says UBS
And according to this last chart from Bank of America, the longer view on AI remains that its adoption will largely deliver for stocks and companies.
Read: AI can further boost the S&P 500, says Goldman Sachs. Here’s how much.
