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Tech FOMO is real, and investors are acting accordingly.
The “spectacular” gains from seven market-leading large-cap stocks over the past two years have convinced investors to invest in the tech sector to avoid being left behind.
Technology stocks dominated the biggest increases in holdings by long-only active mutual funds over the past year, taking nine of the top 10 positions, as this week's chart shows, Savita Subramanian, head of U.S. equity strategy at Bank of America, wrote in a Friday note to clients.
The exception is Eli Lilly (LLY), one of the major players in GLP-1, the fast-growing family of weight-loss drugs that includes Ozempic, Wegobee, Maunjaro, and Zepbound.But the emergence of a seemingly magical weight-loss drug, at its worst, is very close to the tech-centric innovations that AI players talk about.
Over 68% of the fund now holds Nvidia (NVDA), the most popular stock on the list, with the biggest increase being Broadcom (AVGO), which has grown its fund holdings from 26% in April 2023 to 45% one year from now.
“At the inner [tech]“The number of mentions of ‘AI’ during earnings calls was positively correlated with the change in the percentage of funds holding each stock,” Subramanian added, dispelling any doubts about what we are talking about here.
Technology is clearly on the rise thanks to AI. We've seen it go through waves over the past decade, so who's going to miss the next wave of PCs, Internet, phones, and Facebook? The data also speaks volumes about what investors think is OK to own.
The AI companies and weight-loss pill makers on this chart also fit the same mold of big tech-centric bets.
Breakthroughs in innovation drive higher productivity, which drives higher profits, which are reflected in stock-market values. “The market continues to feel narrow,” says Subramanian, noting that while big technology companies have revised up their earnings forecasts, 493 other non-large-cap companies have revised down theirs.
At the same time, the Bank of America team sees “old economy” stocks already benefiting from AI: not just “pick and shovel” companies that supply it, such as copper and power, but also demand-side companies.
So it looks like companies are already using AI to boost productivity, which could make the market feel a little narrower over time — even if those deals aren't as sexy as the ones investors flocked to last year.
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