This is The Takeaway from today’s Morning Brief, that’s possible to register to receive in your inbox every morning, along with:
Tech FOMO is real and investors are acting accordingly.
The past two years of “magnificent” gains in the seven leading markets for mega-cap stocks have convinced investors that technology is the sector to be in so they don’t get left behind.
Savita Subramanian, Bank of America’s chief U.S. equity strategist, noted in a note to clients on Friday that stocks with the biggest increases in long-only active mutual fund holdings over the past year were dominated by technology, which accounted for nine of the top 10 seized. spots, as our Chart of the Week shows.
The outlier was Eli Lilly (LLY), one of the major players in GLP-1s, the booming family of weight-loss drugs including Ozempic, Wegovy, Mounjaro and Zepbound. However, the advent of seemingly magical weight loss drugs is, at worst, a close cousin to the tech-focused innovation that AI players are touting.
More than 68% of funds now own Nvidia (NVDA), the most popular stock on the list, and the biggest gainer was Broadcom (AVGO), where fund ownership rose from 26% in April 2023 to 45% a year later.
“Inside [tech]”, the number of ‘AI’ mentions 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.
Tech is clearly having a moment, thanks to AI. And now that technology has enjoyed some of these over the past decade, no one wants to miss another wave of PC, Internet, phone or Facebook. This data also speaks clearly when it comes to what investors think they won’t get into trouble for owning.
The AI companies in the chart and the weight-loss drugmaker also fit into a tech-focused type of big bet.
Leaps forward in innovation are driving productivity shifts, allowing for increases in profits, which are reflected in the value of the stock market. Subramanian notes that “the market still feels constrained,” given that 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 “old economy” stocks already benefiting from AI. The “guns and shovels” companies like copper and energy that produce the AI offerings are not the only ones benefiting; demand-side companies are too.
So companies already seem to be using AI to increase productivity. Which in the long term should make the market feel less narrow. Even if those trades aren’t as shiny as what investors have been pouring into over the past year.
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