This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
Tech FOMO is real and investors are acting accordingly.
The last two years of “Magnificent” gains from the seven megacap stocks leading markets have convinced investors that tech is the sector to be in, lest they get left behind.
In a Friday note to clients, Bank of America’s head US equity strategist, Savita Subramanian, observed that stocks with the biggest increases in ownership from long-only active mutual funds over the last year were dominated by tech, which took nine of the top 10 spots, as our Chart of the Week shows.
The outlier was Eli Lilly (LLY), one of the major players in GLP-1s, the booming weight-loss drug family including Ozempic, Wegovy, Mounjaro, and Zepbound. However, the advent of seemingly magical weight-loss drugs is, at worst, a close cousin of the tech-centric innovation bandied about by AI players.
Over 68% of funds now hold Nvidia (NVDA), the most popular stock on the list, and the biggest increase was Broadcom (AVGO), which saw fund ownership go from 26% in April 2023 to 45% a year later.
“Within [tech], the number of ‘AI’ mentions on earnings calls was positively correlated with the change in percent of funds owning each stock,” Subramanian added, dispelling any doubts as to what we’re talking about here.
Tech is obviously having a moment, thanks to AI. And with tech having enjoyed a few of these in the last decade, nobody wants to miss another wave of PC, internet, phone, or Facebook. This data also speaks clearly when it comes to what investors don’t think they’ll get in trouble for owning.
The chart’s AI companies, and the weight-loss drugmaker, also fit a tech-centric mold of big bets.
Leaps forward in innovation power productivity shifts, which power an increase in earnings, which are reflected in the stock market’s value. Subramanian notes “the market continues to feel narrow,” considering how 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 “picks and shovels” companies like copper and power that are producing AI supply aren’t the only ones benefitting; companies on the demand side are too.
Companies, then, appear to already be using AI to boost productivity. Which, in time, should make the market feel a bit less narrow. Even if those trades aren’t as shiny as what investors piled into over the last year.
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