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Titanium**Note: This article** is on WeChat***Barron's (ID: Barronschina), edited |Guo Liqun, Titanium** is authorized to publish. This year has been an incredible one for a handful of U.S. tech stocks.
Known as the tech "Big Seven", Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta Platforms (Meta), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) have risen an average of 112% so far this year, creating a 5A new market capitalization of $2 trillion.
Investors who missed this year's tech surprise** may wonder if there is still an opportunity to invest in the tech "Big Seven" in 2024 against the backdrop of expected Fed rate cuts and further easing inflationary pressures.
So far this year, the S&P 500 has lost 23%, erasing all of its losses in 2022, with the Big Seven accounting for more than a quarter of the index's total market capitalization.
However, the stellar performance of a handful of companies in 2023 has sparked debate about whether big tech companies can continue to be the backbone of US stocks in the coming year, with some seeing signs that big tech stocks will continue, while others are concerned about the "headwinds" that could lead to another ** of tech stocks.
Here's what market strategists think about whether the Big Seven can continue to lead the U.S. stock market in the coming months.
Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisor, said: "There is a real chance that the rally-led momentum in big tech stocks will continue into 2024. But he also noted that the premise is that the growth momentum of the US economy is "neither too strong nor too weak", so the likelihood of big tech stocks continuing to lead the rally is "very small".
Suzuki told MarketWatch that if tech stocks are to continue to play the role of the backbone of U.S. stocks next year, the U.S. economy must once again be in a "Goldilocks" state, that is, the economy is growing while inflationary pressures are declining.
Suzuki noted that if the economy accelerates, the rally will extend from the "Big Seven" to other companies with steady earnings growth, and the earnings recovery will prompt investors to turn to cheaper cyclical stocks.
Suzuki believes that by that time, investors will "shop around" and pose a threat to the dominance of a few tech stocks.
Suzuki also believes that the "fuel" that will power economic activity this year may begin to diminish in the coming months, posing earnings risks for tech companies at a time when tightening financial conditions are putting pressure on economic growth and corporate earnings.
Analysts pointed out that investors began to turn to the previously battered ** after experiencing "everything is **" in November, and there are signs that the rally has extended beyond the "Big Seven".
According to Dow Jones Market Data, the Nasdaq 100 index rose last Monday, while the "Big Seven" all *** This is the second time this has happened since 2012. In addition, the small-cap index Russell 2000 has consistently outperformed the S&P 500 in December and posted its biggest outperformance since January 2021. So far in December, the Russell 2000 is up nearly 10%, compared to 3 percent for the S&P 500 and Nasdaq Composite8% and 48%。
Focusing on the Big Seven in 2014 was an important piece of advice to investors by Richard Bernstein Advisors, who wrote in the report: "The idea that there are only seven growth opportunities in the world is absolutely wrong, and our portfolio contains a variety of attractive investments that have been overlooked by investors." ”
Bernstein believes that investors should focus on U.S. small-cap and cyclical, industrials and international**, especially emerging markets**, in 2024. Bernstein wrote in the report: "As after the tech bubble burst, there are a lot of attractive investments right now, but they are just not among the top 7 investors like the most. ”
Royce Investment Partners is also bullish on the outlook for small-cap stocks next year, arguing that some of the factors that are currently giving a boost to the Big Seven will also give a boost to some companies in the small-cap space, which are more attractively valued and which Lauren Romeo, the company's portfolio manager, has called "quality unsung heroes." Romeo believes that the balance between risk and potential reward in these companies is more attractive than that of top tech companies.
Tom Hulick, CEO of Strategy Asset Managers, agrees that the Big Seven may disappear, but there will be more participation, as AI is giving the laggards a boost and the economic environment is becoming more favourable for some smaller companies by market capitalization.
Hulik and his team advised clients to continue to hold all of their current positions in technology stocks, noting in particular that Nvidia would be a leader in chips.
In 2024, Holik believes that the year 2024 will usher in "a bull market that will surpass other bull markets that you have experienced in the past", which used to be driven by earnings expectations and now will be driven by "futuristic outlooks".
In 2024, it will be beneficial to look for other potential winners in addition to big tech, and the more the merrier.
Some market strategists are more optimistic about the opportunities presented by the "next wave of AI adopters" than the established big tech companies, including those that have made their products stronger by using AI.
Dave Sekera, chief U.S. market strategist at Morningstar Research Services, believes that one way to tap into the AI theme without buying ultra-high valuations** is to choose other AI-related companies, i.e., those that integrate new technologies into their workflows and drive revenue growth, rather than companies that produce chips like Nvidia.
"A lot of companies are likely to outsource their AI because they don't necessarily have the capital or expertise to build and test their own AI models, so next year investors will be looking more for companies with stable fundamentals that can participate in the growth and expansion of AI," Sekra told MarketWatch. ”
Piper Sandler's latest corporate spending report shows that U.S. companies are increasingly focusing on AI spending, with 62% of companies showing intention to spend, double last year's 31%.
Piper Sandler's team of analysts, led by Rob Owens, said: "We were very surprised by the fact that 73% of companies said they would plan, test, or implement generative AI in 2024. ”
Known as the "heart of AI," GPUs are expected to be an opportunity of more than $400 billion by the end of 2027. Analysts at Piper Sandler recently wrote in a research note that Nvidia is expected to be the "most obvious leader" in the field, with the company's market share in this area exceeding 70%, and AMD and Intel will compete for another 30%.
Against this backdrop, Richard Bernstein Advisors' Suzuki believes that betting on the AI boom will drive all tech stocks** comes with risks.
"Investors think they're missing out on the big seven and they're looking for a 'second beneficiary,' and the problem is that at the end of the day, all of these companies are seen as winners who can achieve tremendous growth, regardless of the theme, but they can't all be winners," Suzuki said. ”