U.S. large technology stocks return to the bright moment, or is it the calm before the storm?

U.S. large technology stocks return to the bright moment, or is it the calm before the storm?

Nvidia stock is up 189% so far this year.

The first half of 2023 has come to an end. In 2022, under the headwinds such as the Fed’s continued aggressive interest rate hikes, the U.S. technology stocks that ended bleakly have been swept away. The Nasdaq 100 index dominated by technology stocks has risen 39.74% so far this year. According to It was the best first-half performance for the index since its inception in 1985, according to TradingView.

However, the rebound of the Nasdaq 100 Index this year was mainly contributed by ultra-high market capitalization technology stocks such as Apple and Microsoft. Concerns about high valuations have caused some analysts to drop their confidence in these leading U.S. technology stocks to several-year lows. , There are also many market participants who are still optimistic about the future of these stocks.

UBS Global Wealth Management Americas Asset Allocation Director Jason Delaho told China Business News that at present, whether AI can continue to drive the market or at least a few large technology stocks higher is still unknown, “because it is not driven by macro The impact of factors. Although the benefits of AI to users are clear, at this stage, speculation is more than fundamental factors, because the impact on company earnings is still in its early stages, even for a few clear winners. Therefore However, whether the momentum of AI can continue is only based on subjective guesswork.”

Best first-half performance

Since the beginning of this year, the offensive and defensive characteristics of technology stocks have been vividly demonstrated. Optimists believe that AI represents a huge new market and is expected to maintain high growth for many years. At the same time, investors continue to be attracted by the attributes of big tech companies, including strong balance sheets, durable revenue streams and strong competitiveness.

Last Friday (June 30), the Nasdaq 100 Index recorded a perfect end to the first half of 2023 with a one-day increase of 1.6%. On the same day, Apple rose 2.3%, becoming the first company in history with a market value of more than $3 trillion. In the AI-themed investment boom that will sweep the market in 2023, Nvidia has been pushed to the forefront by virtue of its AI chip dominance. Its stock price soared 189% in the first half of this year, becoming the first chip manufacturer with a market value of $1 trillion.

Referring to historical trends, the strength of the Nasdaq 100 this year indicates that the rest of 2023 may also perform well. According to data compiled by foreign media, in the years with an increase of no less than 10% in the first half of the year, the average increase in the second half of the year was about 14%. However, in the years with an increase of more than 20% in the first half of the year, the average increase in the second half of the year narrowed to 8.3%. .

The calm before the storm?

A surge in tech leaders has also raised concerns about valuations. The forward P/E ratio for the Nasdaq 100 is now close to 26, compared with a 10-year average of 21. Although the valuations of Apple, Microsoft and Nvidia are still below the peak of the epidemic period, they are significantly higher than the historical average.

This may be the logic behind some analysts’ weakening confidence. Apple’s Composite Rating — a metric that aggregates buy, hold and sell ratios — is near its lowest level since November 2020, while Microsoft’s is at its lowest since mid-2019, according to data compiled bymedia. . In addition, Google parent Alphabet’s composite rating is at its lowest since April 2018, following downgrades this week by UBS and Bernstein.

The Cboe Nasdaq 100 Volatility Index (NASDAQ Volatility Index, VXN) continued to decline as the strong gains in technology stocks continued. As of Friday, the index was down nearly a third from its March high and below its historical average.

However, there are signs that investors may be bracing for relative volatility ahead, with the VIX, a measure of expected volatility in the S&P 500 based on options pricing, falling more sharply over the same period, further pushing the tech-to-market VIX ratio higher. to the highest level since 2018.

Still, most analysts continue to recommend mega-cap tech stocks. Last Thursday, Citigroup began to cover Apple, giving the latter a “buy” rating and predicting that Apple will have about 30% upside in the future.

“These businesses are successful, have strong fundamentals and have some of the best balance sheets we’ve ever seen in an investment,” said Patrick Burton, portfolio manager at Winslow Capital Management. “I feel comfortable holding onto them.”

“These businesses are still growing, with resilient margins, strong pricing power, and huge dominance in their respective markets.” GraniteShares CEO Will Lind said, “Just when people don’t know what else they have Artificial intelligence (AI) added to the momentum, and they seem to be able to capitalize on this huge momentum.” Linde believes that while these stocks may see a pullback, the prospect of AI development makes investors reluctant to miss the opportunity. Low layout opportunity. “All roads are back to growth, so I’m bullish on the second half,” he said.