JPMorgan expects investors to return to tech stocks after the downturn. What should investors buy?

JPMorgan Chase & Co. believes that tech stocks are poised to resume the upward trend that stalled at the end of the first half of the year. Following a reduction in overvaluation, strong financial results, and more realistic business valuations, investors are ready to return to this sector, according to Bloomberg and Reuters, citing a note from the bank’s analysts.

The pause in growth over the past three months has eased pressure on investors’ positions in the tech sector and made stocks more affordable. Along with rising capital expenditures, consistently high profits, and growing evidence of successful monetization of artificial intelligence (AI), this should support a resurgence of interest in the group, notes the team of analysts led by Mislav Matejka.

"The technology sector may not return to its previous levels of success... nevertheless, the fundamental picture remains positive, and there are many opportunities in the broader AI sector," Reuters quotes JPMorgan analysts as saying.

In recent months, chipmakers’ stocks have faced challenges, which have been exacerbated by calls from OpenAI CEO Sam Altman and Anthropic CEO Dario Amodei to slow down the development of cutting-edge AI. However, JPMorgan does not believe this scenario will play out: “We are skeptical that there will ultimately be a significant slowdown, as this race remains existential, following a ‘winner-takes-all’ principle,” Bloomberg quotes Matejka as saying.

The investment bank sees particular potential in the stocks of semiconductor manufacturers. JPMorgan remains “bullish” on these stocks, pointing to healthy fundamentals, expected price growth through 2027, and a severe supply shortage that could last until 2028, Reuters reports. According to Mateyka’s assessment, renewed interest in chipmakers should provide a strong boost to the South Korean market (where Samsung Electronics and SK Hynix are based) and, indirectly, to emerging-market stocks as a whole, adds Bloomberg.

At the same time, analysts are cautious about software developers: the development of AI is casting a shadow over their long-term prospects due to a sharp increase in competition. Experts recommend that investors return to a “semiconductors versus software” trading strategy, Reuters reports.

“Stronger performance in the technology sector would certainly help the market, given its significant weight,” Matiejka concludes. “However, we don’t consider this critical: the market may not even need AI to outperform the broader market in order to continue growing.”

This year, tech stocks continue to lead the S&P 500 by a wide margin in terms of growth. The MSCI World Semiconductors and Semiconductor Equipment Index has soared 48% since the start of the year, while the software developers’ index has gained only 1.3%, according to Reuters.

However, in recent months, the rally has slowed due to concerns that massive investments in AI may not yield the quick returns that optimists had hoped for. Amid the summer correction within the sector, the “Magnificent Seven” stocks are now trading at their lowest multiples in the past 10 years, Bloomberg adds.

This article was AI-translated and verified by a human editor