The Takeaway: Tech FOMO Driving Investor Behavior

Tech FOMO Drives Investors to Double Down on Tech Stocks

Investors are feeling the fear of missing out (FOMO) when it comes to tech stocks, and they are acting accordingly. The past two years have seen significant gains from the seven megacap tech stocks leading the market, convincing investors that tech is the sector to be in to avoid being left behind.

In a recent note to clients, Bank of America’s head US equity strategist, Savita Subramanian, pointed out that stocks with the biggest increases in ownership from long-only active mutual funds over the last year were predominantly in the tech sector. In fact, tech stocks took nine out of the top 10 spots, as shown in the Chart of the Week.

One outlier in the list was Eli Lilly (LLY), a major player in the booming weight-loss drug market. However, Subramanian noted that the advent of weight-loss drugs is akin to the tech-centric innovation seen in the AI space.

The data shows that over 68% of funds now hold Nvidia (NVDA), making it the most popular stock on the list. Additionally, Broadcom (AVGO) saw a significant increase in fund ownership from 26% to 45% over the past year.

Subramanian emphasized the correlation between mentions of “AI” on earnings calls and the change in percent of funds owning each stock within the tech sector. This further solidifies the notion that tech, driven by AI, is currently in the spotlight.

While tech has been a dominant force in the market, Subramanian also highlighted the potential for “old economy” stocks to benefit from AI. Companies involved in producing AI supply, as well as those on the demand side, are already seeing productivity boosts from AI implementation.

Overall, the market continues to favor tech stocks, particularly those with a focus on AI innovation. As companies leverage AI to drive productivity shifts, the market may begin to feel less narrow, offering opportunities beyond the shiny tech trades that have dominated investor interest in recent years.

Tech is clearly having a moment, and investors are eager to ride the wave of innovation and growth that the sector offers. As the market evolves and companies continue to embrace AI, the landscape of investment opportunities is likely to expand, providing new avenues for growth and diversification.