“We think more companies are likely to find ways to monetize their AI exposure, and investors will be looking for evidence on how companies can maintain or improve their margins,” Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote in a research note on Jan. 17. “We are only in the first innings of the AI story.”
Crowding Concerns
At the same time, signs of crowded positioning in tech are raising concerns about the risk of a sell off if results from some of the giants disappoint. A global fund manager survey from Bank of America Corp. this month showed the most common trade is being long Big Tech and other tech growth stocks.
To Matt Maley of Miller Tabak + Co., recent trading has shown that Big Tech is driving the market again and the heavy concentration is a “warning flag” for investors that may come back to bite them.
“When the fast-money hedge funds have such large concentrated positions, it leaves the market very vulnerable to a short-term shock,” said Maley, the firm’s chief market strategist.
Despite this set up, the options market is pricing in “virtually no risk” for megacap stocks, according to Brian Donlin, head of equity derivatives strategy at Stifel Nicolaus.
Ameriprise Financial’s Saglimbene is confident that any selloff would be relatively short lived as the attraction of Big Tech stocks are unlikely to dim.
“Over the long term, investors will look to these companies and gravitate back to them because they really do have the growth, the recurring revenue and the potential for greater growth in the future,” he said. “No other sector offers that kind of runway for earnings.”
This article was provided by Bloomberg News.