As Nvidia And Other Tech Stocks Soar, Expert Downgrades Sector Amid Overvaluation Concerns

The tech sector, a major driver of the stock market’s recent gains, has been downgraded by Truist’s Chief Strategist and CIO, Keith Lerner. This move comes amid concerns of overvaluation and a subsequent recommendation to invest in alternative sectors.

What Happened: Lerner recently downgraded the tech sector from overweight to neutral, citing concerns over its current valuation. This decision comes on the heels of the sector’s 11% outperformance of the market last month, reported Business Insider on Monday.

Lerner, however, remains optimistic about the long-term prospects of the tech sector, particularly in the field of AI.

“There will likely be a better opportunity to deploy capital in a meaningful way, and we will be looking for a better entry point to upgrade the sector in the future,” Lerner wrote in the note.

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Truist is now shifting its focus to sectors that are indirectly benefiting from the AI boom, such as communication services and utilities. These sectors are seeing increased demand due to initiatives to invest in 5G network infrastructure and the power consumption of data centers.

This shift comes as U.S. tech stocks, including NVIDIA Corp NVDA, have seen massive gains this year. Nvidia has surged 156.47% year-to-date. Meanwhile, the “Magnificent Seven” tech stocks—Microsoft Corp MSFT, Apple Inc AAPL, Nvidia, Meta Platforms Inc META, Tesla Inc TSLA, Amazon.com Inc AMZN, and Alphabet Inc GOOG, GOOGL—are up about 57% over the past year.

Why It Matters: The downgrade from Truist comes at a time when there are mixed signals about the future of the tech sector. Wedbush analyst Dan Ives recently predicted a 15% surge in tech stocks in the second half of 2024, driven by expanding AI use cases. Ives believes the tech bull market has longevity, suggesting that the current AI boom is far from over.

However, not everyone shares this optimism. Economist Harry Dent has warned of an impending market crash, predicting that the S&P 500 could plummet by 86%. Dent’s cautionary stance highlights the potential risks of the current market environment, which he believes is in an “everything” bubble.

Adding to the complexity, Goldman Sachs has forecasted a flat return for the S&P 500 for the remainder of the year, suggesting that the market may have already peaked. This contrasts with the more optimistic views of analysts like Ives and Gene Munster, who predict a three to five-year bull market driven by AI.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote