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Tech FOMO is real and investors are acting accordingly.
The last two years of “magnificent” gains from the top seven mega-cap equity markets have convinced investors that technology is the sector to bet on to avoid being left behind.
In a note to clients on Friday, Bank of America chief U.S. equity strategist Savita Subramanian noted that stocks with the biggest increases in long-term-only active mutual fund ownership over the past year were dominated by technology, which occupied nine of the 10 main spots, as shown in our Chart of the Week.
The exception was Eli Lilly (LLY), a major player in GLP-1, the growing family of weight-loss drugs that includes Ozempic, Wegovy, Mounjaro and Zepbound. However, the advent of seemingly magical weight-loss drugs is, at worst, a close cousin to the technology-centric innovation touted by AI gamers.
More than 68% of funds now hold Nvidia (NVDA), the most popular stock on the list, and the biggest increase was Broadcom (AVGO), which saw fund ownership go from 26% in April 2023 to 45% a year ago. after.
“Inside of [tech]the number of mentions of ‘AI’ on earnings calls was positively correlated with the change in the percentage of funds owning each stock,” Subramanian added, dispelling any doubts about what we are talking about here.
Technology is obviously having a moment, thanks to AI. And with technology having enjoyed some of them in the last decade, no one wants to miss out on another wave of PC, internet, phone or Facebook. This data also speaks clearly when it comes to what investors think they won’t get in trouble for owning.
Chart’s AI companies and weight-loss drug maker also fit the mold of technology-centric big bets.
Advances in innovation drive productivity changes, which drive an increase in profits, which are reflected in stock market value. Subramanian notes that “the market remains thin,” considering how Big Tech is getting positive earnings estimate revisions while the other 493 non-megacaps are getting cuts.
At the same time, the BofA team sees that “old economy” stocks are already benefiting from AI. The “picks and shovels” companies like copper and energy that produce AI supply are not the only ones to benefit; so are demand-side companies.
Companies, then, appear to already be using AI to increase productivity. Which, over time, should make the market look a little less tight. Even if these trades are not as brilliant as the ones investors made last year.
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