After a brutal stretch for momentum tech stocks the past week, some investors may be warming up to the view that it’s time to cash in their chips and head for the hills.
While that is understandable, it’s important to keep two things in mind on tech names.
First, major tech stock pullbacks are normal in a bull market, Truist chief markets strategist Keith Lerner pointed out.
Since this bull market began in October 2022, the S&P 500 tech sector has experienced 12 five-day declines of more than 6% and five double-digit pullbacks ranging from 10% to 26%, Lerner said. Semiconductors have experienced five 10-day declines exceeding 15%.
The second point is that the long-term trend on tech is still higher even considering these routs.
Despite these setbacks, the Philadelphia Semiconductor Index (SOXX) has gained more than 400% during this current bull market. The Technology sector (XLK) has gained 238%, more than double the S&P 500’s (^GSPC) 114% return.
All of this is not to downplay what the market has recently digested on tech.
AI chip darling Nvidia (NVDA) shed more than $350 billion in market value last week. The Philadelphia Semiconductor Index plunged more than 11%.
Neocloud CoreWeave (CRWV) shed 25% on the week amid rising borrowing costs.
The returning concern: Revenue may not match the billions of dollars companies are investing in AI. How that unfolds for companies using massive amounts of debt to fund their AI investments is a top worry right now.
“The tech love-hate relationship continues. A once-in-a-generation technological advancement offers significant potential, but the wide range of outcomes and the difficulty identifying long-term winners and losers amplify each narrative and data point,” Lerner said. “The recent weakness should be viewed in the context of these outsized gains.”
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Sozzi Unleashed morning show and the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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