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The Nasdaq Composite exceeded the 17,000 point mark for the first time earlier this week.
I’m not exactly one to get excited about all-time highs on major stock markets or certain stocks, but I thought this “milestone” was really cool.
When I started my career in the summer of 2004, the Nasdaq Composite was at about 1,800, which was not far removed from the dot-com bust. That’s a ninefold increase in twenty years – and at the same time my hairline has REDUCED ninefold!
Today we are witnessing a new technological boom, with the daily advances of generative AI fueling the rise of companies like Nvidia (NVDA), Anthropic and OpenAI. While some of this technology is incredibly scary, there is no denying the impact it is having on value perception in the markets.
And during the week, I got the latest dose of insight into how the spread of AI is driving financial statements and forecasts.
Enrique Lores, CEO of HP Inc. (HPQ), told me (video above) that one factor in the company’s second-quarter earnings per share expectations is the release of higher-priced AI PCs in mid-June. These will be HP’s first line of AI PCs with more powerful processors to support various AI-related tasks.
Chewy (CHWY) CEO Sumit Singh didn’t explicitly mention AI in our chat, but you could see how it’s starting to drive better sales and margins. I understand that the company’s investments in automated technology allow it to respond more quickly to consumer needs.
A similar vibe was felt when I spoke with Fran Horowitz, CEO of Abercrombie & Fitch (ANF), which uses new technology to keep inventory low and then “chase” demand signals in real time. The end result: impressive margin expansion.
Exciting things!
And all this helps to understand the excitement surrounding many big tech stocks.
But then there were those raw Salesforce (CRM) numbers and guidelines.
Oof.
I wrote about it at the crack of dawn in our live markets blog because I couldn’t get over how disappointing the quarter was. It really came out of left field given the company’s new AI offering.
Still, guidance was moderate and Salesforce could stay out of the hot AI business until macroeconomic conditions improve.
But the shocking Salesforce quarter sent me to dive into the tech-heavy Nasdaq, specifically the Nasdaq 100 – the 100 largest non-financial companies traded on the Nasdaq – to see if any warning signs are creeping into view.
In short, I don’t like what I discovered, for all of you who believe stock prices are the truth – or a predictor of future fundamentals.
While the Nasdaq 100 is hovering around new highs amid the strength of names like Nvidia and Apple (AAPL), drastically fewer stocks are holding above their 50-day moving averages, according to new research from Sundial Capital Research. Last week, less than 60% of stocks in the Nasdaq 100 were above their 50-day moving averages. That’s not great.
Fewer and fewer stocks are also holding above their 200-day moving average, Sundial notes.
“It looks ominous on a chart, but historically the biggest weakness in future returns has been limited to the next 1-3 months,” Sundial’s research team said.
Among the laggards in the Nasdaq 100 are consumer names Dollar Tree (DLTR) and Lululemon (LULU). But the AI activities in Workday (WDAY) and Autodesk (ADSK) also underperformed relatively.
“It’s a have-and-have-not market for technology stocks. Investors want to bet on the pure AI revolution where Big Tech dominates and leaves other tech stocks behind,” says Wedbush’s ubiquitous technology analyst Dan Ives. .
Truist co-chief investment officer Keith Lerner tells me the weakness in non-tech names could persist amid a convergence of factors.
“What seems to be hurting the other sectors outside of tech is the recovery in 10-year government bond yields; after reaching just above 4.3%, support is now back above 4.6% as the market has pulled back on Fed rate moves. And as we get further into June, the elections will come closer and closer. This is likely contributing to some of the recent selling pressure,” says Lerner.
I’m not saying that the Nasdaq is headed for a summer bear market. What I’m saying is that not all is as healthy in tech land as it seems, and there could be a pullback in the top tech stocks this summer as investors reassess valuations from the beach.
Are there values to be had among Nasdaq stocks that aren’t participating in the current rally? Before you start your search, hear how renowned value investor Jonathan Boyar approaches his process in the latest Yahoo Finance “Opening Bid” podcast. Listen in below.
Brian Sozzi is editor-in-chief of Yahoo Finance. He is also the host of the “Starting bid” podcast. Follow Sozzi on Twitter/X @BrianSozzi and further LinkedIn. Tips about deals, mergers, activist situations or something else? Email brian.sozzi@yahoofinance.com. Are you a CEO and want to join Yahoo Finance Live? Email Brian Sozzi.
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