Megacap tech stocks are leading the market rally in 2023, so it may be time to remove some chips from the table. This is according to Wall Street’s most respected technology analyst. Toni Sacconaghi, a Bernstein analyst, advises clients to profit from the leaders of this year. Sacconaghi has been consistently rated as the No.1 IT hardware and electronics manufacturing service analyst by Institutional Investor. The analyst wrote in a Monday note that “our analysis of historical periods with very concentrated market performances reveals that the performance of the broad market is ok but that the strongest contributing companies typically underperform. This suggests that investors might want to look selectively to take profit on this year’s leading contributors.” Stock selection becomes more important when the market is concentrated. Nearly 65% of the total capitalization in tech is now accounted for by the 10 largest companies. In the first half, investors flocked towards tech stocks, particularly those tied to the artificial-intelligence boom. Nvidia, Meta, Alphabet, Microsoft and Amazon all saw their prices rise by at least 35% in the first half of 2023. As fears about rising interest rates returned, the rally has stabilised and in some cases, diminished. Apple’s second-half performance has been down 10%, Microsoft and Broadcom are down 6%. Bernstein maintained its neutral rating for tech stocks and said that investors should focus on quality shares which are undervalued. Sacconaghi stated, “We maintain market weight in technology and encourage investors to select opportunities on both sides of barbell – inexpensive value names as well as select quality growth names that have a high probability of meeting expectations.” Michael Bloom of CNBC contributed to the reporting.
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