The rally in tech stocks, driven largely by gains in the semiconductor and computer hardware sectors that have benefited from advances in AI, significantly outperformed the broader market in the first half of the calendar year.
Tech stocks have surged 21.5% in the first half of 2024, according to a note released Monday by Bernstein Private Wealth Management, which now poses both opportunities and challenges for investors.
While the technology sector has posted impressive gains, its performance has been highly concentrated, with Nvidia (NASDAQ:) alone accounting for the majority of the positive performance.
Only 30 percent of tech stocks outperformed, the lowest figure since 2002, Bernstein said, adding that this concentration clearly illustrates the limited nature of tech stocks’ gains.
At the same time, valuation concerns have also loomed large: Tech stocks are currently trading at 49% above market value, approaching levels seen during the dot-com bubble and well above their historical averages, Bernstein said.
Bernstein also noted that while expected growth premiums in the technology sector remain higher than historical norms, particularly driven by the semiconductor sector, rising valuations pose risks, especially given the potential digestion period for AI and continued uncertainty in global markets.
However, growing adoption of AI and hopes for a possible economic recovery continue to support the technology’s momentum.
Lower expected interest rates could further boost growth stocks, including tech stocks, but the risk of overvaluation remains, according to Bernstein.
Bernstein recommended that investment strategies going forward should focus on a balanced approach, adding that investors should maintain their market weighting allocation to technology.
He also suggested that investors should adopt a barbell strategy between growth-oriented and value-oriented tech stocks, adding that there may also be opportunities in selectively investing in small and mid-cap stocks that offer more attractive valuations and have lagged performance.
