Deutsche Bank upgrades U.S. tech stocks as $2 trln selloff creates buying opportunity

Deutsche Bank has upgraded U.S. tech stocks, arguing that the selloff that shook the sector in October has created an attractive buying opportunity, Reuters reports. The bank turned bullish again just three weeks after downgrading the sector.

October’s sharp tech selloff has created an attractive buying opportunity, Deutsche Bank wrote in a note on Friday. That day, the tech-heavy Nasdaq Composite fell 2.8%, its biggest decline since June. Reuters cited the Deutsche Bank note on Monday.

The bank upgraded the U.S. tech sector from “neutral” to “overweight,” Barron’s reports. The move came just three weeks after Deutsche downgraded the sector on October 9. The bank believes much of the AI-related risk is now priced into stocks. “The risk-reward is now in favor of tech again and we upgrade it back to overweight,” its strategists wrote in the note cited by Barron’s.

The Nasdaq 100’s combined market capitalization fell by more than $2 trillion in October as investors reassessed AI investments and growth expectations, Reuters writes. The broader Nasdaq Composite has lost around 7% since Deutsche downgraded the U.S. tech sector, on Barron’s numbers.

The selloff has made tech stocks look much more attractively valued in an environment where earnings are still growing, albeit at a slower pace, Deutsche Bank’s strategists argue. They point to five occasions over the last two and a half years when a sharp tech selloff was followed by a rebound. Tech stocks gained 32% on average in those rotations back into the sector.

In trading on Monday, the Nasdaq 100 was up less than 0.1%, while the Nasdaq Composite gained around 0.3%. Other indexes also advanced: the broad-market S&P 500 added 0.4%, the blue-chip Dow Jones Industrial Average 1%, and the smid-cap Russell 2000 0.7%.

Tech and mega-cap growth stocks have lagged the rest of the S&P 500 by more than 16 percentage points over the last three weeks, falling around 11% while the broader index gained around 6%, Reuters notes. Magnificent Seven earnings have reinforced investor concerns about returns on massive AI investments, contributing to declines in tech giants’ stocks.

Analysts are divided over how to interpret the rise in U.S. stocks at the very start of November following the October slide. Dan Ives, a prominent tech bull and partner at Yorkville Ives, believes the underlying signs of enterprise AI buildouts are stronger after the Magnificent Seven’s earnings than before them. ING Chief Investment Strategist Simon Wiersma, however, believes the rebound looks relatively modest against Friday’s selloff and does not yet provide a convincing signal to buy the dip.