Tech Stocks Sell-Off: Shifting Funds from Tech to Small Caps Amidst AI Spending and Valuation Concerns

New York, New York, USA United States of America
Big tech companies increasing spending on AI initiatives but returns are not clear and rotation out of big tech is expected to continue
Investors reconsidering holdings in tech stocks due to rate cut bets and concerns over valuations and profit growth
Nasdaq Composite decreased by nearly 8% between July 11 and 25, 2024
ServiceNow and IBM reported strong earnings contributing to tech stocks rebound
Small caps have become a top buying choice for investors due to their strong performance compared to Nasdaq 100
Tech stocks sell-off causing a shift in funds from tech to small caps
Tesla's lackluster earnings report weighed heavily on the sector
U.S. economy grew by 2.8% in Q2 2024 exceeding expectations, inflation rate dropped to 2.5% close to Federal Reserve's target leading to increased rate-cut bets
Tech Stocks Sell-Off: Shifting Funds from Tech to Small Caps Amidst AI Spending and Valuation Concerns

Tech stocks have experienced a significant sell-off in recent weeks, with the Nasdaq Composite decreasing by nearly 8% between July 11 and 25, 2024. However, some analysts believe that this trend is not over yet. According to Wall Street strategists, investors are shifting funds from big tech stocks to previously unloved areas of the market (1).

The Nasdaq 100 suffered its largest single-day percentage drop since October 2022, with the technology sector being the main culprit. Several factors have contributed to this sell-off. Bets on Federal Reserve rate cuts have led some investors to reconsider their holdings in tech stocks (1).

Tesla's (TSLA) lackluster earnings report also weighed heavily on the sector, as did fears about Alphabet's (GOOG, GOOGL) AI spending ramp and concerns over valuations and profit growth (2).

Despite these challenges, some tech companies have reported strong earnings. ServiceNow (NOW) and IBM (IBM), for example, have contributed to the rebound in tech stocks. Additionally, the U.S. economy grew by an impressive 2.8% in the second quarter of 2024, exceeding expectations (3).

Furthermore, inflation rate dropped to 2.5% in June, close to the Federal Reserve's target and leading to increased rate-cut bets (3). This could potentially lead to a further rebound in tech stocks.

Small caps have become a top buying choice for investors due to their strong performance in comparison to the Nasdaq 100. The Russell 2000 recorded its best three-week stretch since 2022, with an outperformance spread between it and the Nasdaq 100 being the second most extreme in history (4).

However, big tech companies are increasing their spending on AI initiatives. It is not clear when returns will come from these investments (4). The rotation out of big tech is expected to continue as investors question valuations and profit growth.

References:

  1. CNBC. (2024, July 25). Here's a sell-off strategy to take advantage of the painful market rotation out of tech stocks. https://www.cnbc.com/2024/07/25/sell-off-strategy-to-take-advantage-of-the-market- rotation- outside- tech/

  2. InvestorPlace. (2024, July 16). Why Tech Stocks Are Poised for a Strong Comeback Now. https://investorplace.com/hypergrowthinvesting/2024/07/ swhy-tech- stocks- are-poised-for- a-strong comeback--now/

  3. Dow Jones Newswires. (2024, July 26). Tech Rallies Ahead of Earnings -- Tech Roundup. https://www.marketscreener.com/news/latest/Tech-Rallies-Ahead-of- earnings--Tech- Roundup--47485480/

  4. Yahoo Finance. (2024, July 28). Why the tech stock selloff isn't over yet: Wall Street strategists. https://finance.yahoo.com/news/why-the-tech-stock- selloff- isnt- over--yet--wall -street strategists--140053448


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Confidence

100%

No Doubts Found At Time Of Publication

Sources

79%

The overall score is a weighted number that takes into account conflict of interest, bias, deception and other practices that undermine the credibility of the source. It is calculated as:
(Site Conflicts Of Interest + Author Conflicts Of Interest) / 2.0 * 0.2 + ArticleBiasScore * 0.20 + UniquePointsScore * 0.05 + DeceptionScore * 0.20 + ReadabilityScore * 0.05 + FallacyScore * 0.20

A score that takes into consideration the content for flow, interruptions with ads, and overt search engine optimization techniques that makes the content hard to understand

Why the tech stock selloff isn't over yet: Wall Street strategists

Yahoo Finance Seana Smith Sunday, 28 July 2024 19:47
  • Unique Points
    • The tech stock selloff is continuing as investors shift funds from big tech stocks to previously unloved areas of the market.
    • , The Nasdaq 100 suffered its largest single-day percentage drop since October 2022, with the technology sector being the main culprit.
    • Bets on Fed rate cuts, Tesla’s lackluster earnings, and fears about Alphabet’s AI spending ramp are contributing to the selloff.
    • The rotation out of big tech is expected to continue as investors question valuations and profit growth.
    • Small caps have become a top buying choice for investors due to their strong performance in comparison to the Nasdaq 100.
    • The Russell 2000 recorded its best three-week stretch since 2022, with an outperformance spread between it and the Nasdaq 100 being the second most extreme in history.
    • Big tech companies are increasing their spending on AI initiatives but it is not clear when returns will come.
  • Accuracy
    • The Nasdaq 100 suffered its largest single-day percentage drop since October 2022, with the technology sector being the main culprit.
  • Deception (30%)
    The article contains selective reporting as it only mentions the declines in tech stocks and the shifts in investor preferences towards small caps without providing any context or mention of potential positive developments or factors that may be contributing to these trends. The author also uses emotional manipulation by creating a sense of urgency and fear around the tech selloff, implying that investors who are not shifting their investments to small caps are making a mistake.
    • These firms during the past six months have dramatically increased their planned spending on AI initiatives but it is not apparent when the return will come – in 2027, 2028, 2029, or perhaps not at all.
    • Consensus estimates of 2024 and 2025 capex and R&D spending by the hyperscalers have increased by $65 billion compared with expectations at the start of the year. However, analysts have lifted their sales forecasts for 2025 and 2026 by only $36 billion – a gap of nearly $30 billion.
    • Horneman, who warned the AI trade is ‘hitting a wall,’ added that the rotation out of big tech is only the start of a ‘valuation correction.’
    • The tech rout is far from over... The Nasdaq 100 closed the week down 2.7%, marking the third week in a row of declines, with the technology sector suffering its largest single-day percentage drop since October 2022.
  • Fallacies (80%)
    The author makes an appeal to authority when quoting Megan Horneman, Brad McMillan, and David Kostin. She also uses inflammatory rhetoric by stating that 'the tech rout is far from over' and 'there's a threat of more pressure ahead'.
    • The culprits: bets on Fed rate cuts, Tesla’s (TSLA) lackluster earnings, and fears about Alphabet’s (GOOG, GOOGL) AI spending ramp.
    • Horneman, who warned the AI trade is ‘hitting a wall’, added that the rotation out of big tech is only the start of a ‘valuation correction.’
    • And that risk of slower profit growth, coupled with increased spending on AI, could signal that the ‘epic momentum reversal’ will persist.
    • Consensus estimates of 2024 and 2025 capex and R&D spending by the hyperscalers have increased by $65 billion compared with expectations at the start of the year. However, analysts have lifted their sales forecasts for 2025 and 2026 by only $36 billion – a gap of nearly $30 billion.
    • These firms during the past six months have dramatically increased their planned spending on AI initiatives but it is not apparent when the return will come – in 2027, 2028, 2029, or perhaps not at all.
  • Bias (100%)
    None Found At Time Of Publication
  • Site Conflicts Of Interest (100%)
    None Found At Time Of Publication
  • Author Conflicts Of Interest (100%)
    None Found At Time Of Publication

96%

The overall score is a weighted number that takes into account conflict of interest, bias, deception and other practices that undermine the credibility of the source. It is calculated as:
(Site Conflicts Of Interest + Author Conflicts Of Interest) / 2.0 * 0.2 + ArticleBiasScore * 0.20 + UniquePointsScore * 0.05 + DeceptionScore * 0.20 + ReadabilityScore * 0.05 + FallacyScore * 0.20

A score that takes into consideration the content for flow, interruptions with ads, and overt search engine optimization techniques that makes the content hard to understand

Here's a sell-off strategy to take advantage of the painful market rotation out of tech stocks

CNBC News Jeff Marks Thursday, 25 July 2024 18:34
  • Unique Points
    • Abbott stands out among the wreckage in tech stocks
    • Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch with an actionable afternoon update for last hour of trading on Wall Street
  • Accuracy
    • Tech stocks are tanking due to profit-taking
    • The tech stock selloff is continuing as investors shift funds from big tech stocks to previously unloved areas of the market.
    • Tech companies' shares rallied after muted consumer inflation data increased the chances of a Federal Reserve rate cut.
  • Deception (100%)
    None Found At Time Of Publication
  • Fallacies (100%)
    None Found At Time Of Publication
  • Bias (100%)
    None Found At Time Of Publication
  • Site Conflicts Of Interest (100%)
    None Found At Time Of Publication
  • Author Conflicts Of Interest (100%)
    None Found At Time Of Publication

97%

The overall score is a weighted number that takes into account conflict of interest, bias, deception and other practices that undermine the credibility of the source. It is calculated as:
(Site Conflicts Of Interest + Author Conflicts Of Interest) / 2.0 * 0.2 + ArticleBiasScore * 0.20 + UniquePointsScore * 0.05 + DeceptionScore * 0.20 + ReadabilityScore * 0.05 + FallacyScore * 0.20

A score that takes into consideration the content for flow, interruptions with ads, and overt search engine optimization techniques that makes the content hard to understand

Tech Rallies Ahead of Earnings -- Tech Roundup

MarketScreener Unknown MarketScreener Friday, 26 July 2024 21:41
  • Unique Points
    • Tech companies' shares rallied after muted consumer inflation data increased the chances of a Federal Reserve rate cut.
    • Microsoft, Apple, and Meta Platforms’ shares rose ahead of their earnings reports.
    • Apollo Global agreed to buy Everi Holdings and IGT’s gambling and slot machine business in a $6.3 billion deal.
  • Accuracy
    • Tech stocks are tanking due to profit-taking.
  • Deception (100%)
    None Found At Time Of Publication
  • Fallacies (100%)
    None Found At Time Of Publication
  • Bias (100%)
    None Found At Time Of Publication
  • Site Conflicts Of Interest (100%)
    None Found At Time Of Publication
  • Author Conflicts Of Interest (100%)
    None Found At Time Of Publication

95%

The overall score is a weighted number that takes into account conflict of interest, bias, deception and other practices that undermine the credibility of the source. It is calculated as:
(Site Conflicts Of Interest + Author Conflicts Of Interest) / 2.0 * 0.2 + ArticleBiasScore * 0.20 + UniquePointsScore * 0.05 + DeceptionScore * 0.20 + ReadabilityScore * 0.05 + FallacyScore * 0.20

A score that takes into consideration the content for flow, interruptions with ads, and overt search engine optimization techniques that makes the content hard to understand

Why Tech Stocks Are Poised for a Strong Comeback Now

InvestorPlace.com Luke Lango Friday, 26 July 2024 18:19
  • Unique Points
    • Tech stocks have rebounded after a 4% decrease in the S&P 500 and nearly 8% decrease in the Nasdaq Composite between July 11 and 25, 2024.
    • Strong earnings reports from companies like ServiceNow (NOW) and IBM (IBM) have contributed to the rebound.
    • The U.S. economy grew by an impressive 2.8% in the second quarter of 2024, exceeding expectations.
    • Inflation rate dropped to 2.5% in June, close to the Federal Reserve’s target and leading to increased rate-cut bets.
  • Accuracy
    • The economy is growing at a healthy pace
    • Inflation is falling towards the Fed’s 2% target
    • Earnings are strong due to companies investing billions in AI products and services.
    • AI adoption at both enterprise and consumer levels is increasing and will continue over the next few quarters and years.
  • Deception (100%)
    None Found At Time Of Publication
  • Fallacies (95%)
    The author uses several informal fallacies throughout the article to make his argument more persuasive. He employs an appeal to authority by citing strong earnings reports from ServiceNow and IBM as evidence of tech stocks' potential for a strong comeback. Additionally, he makes a hasty generalization when he states that 'inflation is falling toward the Fed’s 2% target and, indeed, is almost there already.' He also uses an appeal to emotion by encouraging readers to 'back up the truck and buy this dip' in tech stocks. However, these fallacies do not significantly impact the overall credibility of the article.
    • ]The past two days have seen a wave of strong earnings reports from companies like ServiceNow (NOW) and IBM (IBM).[
    • Inflation is falling toward the Fed’s 2% target and, indeed, is almost there already.
    • That’s exactly the setup we have right now. And that means this is the time to back up the truck and buy this dip.[
  • Bias (100%)
    None Found At Time Of Publication
  • Site Conflicts Of Interest (100%)
    None Found At Time Of Publication
  • Author Conflicts Of Interest (100%)
    None Found At Time Of Publication