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Mega-cap tech stocks took another hit in the sell-off that started this trading week, erasing $650 billion in market cap at a time when investors are beginning to rotate out of the Big Tech. Should investors interpret this environment as a sign to exit from the Magnificent Seven and long-term AI trades?
Josh Schafer breaks down a variety of Wall Street notes, indicating whether the AI trade has reached its bottom stemming from Monday's sell-off and if investors should hunker down for the long-term.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
This post was written by Luke Carberry Mogan.
Zeroing in on megacap tech, although we're seeing investors question when generative AI will result in revenue for a number of big names, there are still those that are seeing big buying opportunities in the sector. Here with more, we've got Yahoo! Finance markets reporter, Josh Schafer. Hey, Josh.
Yeah, Brad. So to just put this move in perspective for you, looking at some of the large cap tech companies we were just showing on your screen. If you looked at Nvidia, Microsoft, Alphabet, and Amazon, those are now all off more than 15% in the last month. And some of the larger equity strategists we follow, and research teams that we follow, are starting to come in and say, maybe it's time to buy the dip. Maybe there's a little bit of an opportunity here. So BlackRock Investment Institute wrote last night that they're still overweight US equities driven by the AI mega force. And they see the sell-off presenting buying opportunities. They essentially think that the recession concerns that are going around the market right now are overdone. Evercore ISI's Julian Emanuel has the highest price target for the S&P 500 on the street right now at 6,000, still hammering that AI trade right now. He wrote, "We view the current AI air pocket as an opportunity to gain exposure to a long-term secular theme." Guys, I think the takeaway here from both BlackRock and Evercore is, don't let two days of market action sort of shake what your overall strategy was. They're not going to let a little bit of economic data, and a little bit of a shift in the narrative here, sort of change what, again, they think is a secular theme. Secular theme, we're usually talking pretty long term, right? So if you're a long-term buyer in that AI theme, they think it's still constructive to be getting in at this point.
I'm curious what you've made with the conversations, conversations, many conversations that you've had with strategists here over the last 24 hours or so. What do they think is going to be the catalyst for that turnaround? Are they looking for more, maybe some reassurance on Thursday when you take a look at the jobless claims, as you look ahead to inflation print, or is it more maybe other technical based bounces that we could, that we could be seeing based on the broader indices?
It's both, depending on who you talk to, right? There's a lot of people that want to look at the VIX right now and say, "Well, the VIX is above 35. It's moved a standard deviation." We could start going into really technical things, but essentially when you have that big of a vol spike, it's going to take a little bit to settle. Then you mentioned the macro data, not great this week for much of a catalyst. Yes, jobless claims, sure. But I think you need to wait another week, you might need to wait until Jackson Hole to get a better feeling. Maybe it's Nvidia earnings, right? Because one thing that was pointed out that I found interesting, this was from the team over at Goldman Sachs, they were just simply looking at earnings estimates for these companies, and you've seen the price come down, right? But earnings estimates since June 30th have actually held up pretty good. They're up for everyone except Microsoft. That's what you're looking at on your screen now. This is 4 DPS for 2025 consensus revisions. Those are still on the rise. So what you're looking at is price is coming down, earnings estimates are going up. If we're going to do a basic valuation analysis here, the stocks are getting, quote unquote, cheaper. They're not quite cheap enough. If you're looking at a long-term median, Goldman said they're at a 27 P instead of a 24 P. So maybe I think there's a little bit more of a pullback that some people are waiting for in big tech. I don't think there's a lot of people saying this is the bottom. There was not a lot of people... There were people saying they wanted to nibble yesterday, but no one is saying, "We feel like this is all over, this is the bottom." It seems like volatility for the rest of August and some chop, probably leading all the way into that Fed meeting, honestly, is what most people are looking at at this point.
Well, volume has something to do with it too, especially if you have a certain amount of traders that are away from the desks. There's not the same amount of...
People still got to go to the beach, Brad. Still August.
They got to take the last couple of weeks of August off, yeah. I know. We know you're going to the beach, Josh.
I work on that tan. Got to work on that tan every day.
Exactly.
