Tech stocks H2 investment playbook

The tech industry has been riding high on the AI thematic, with the Nasdaq hitting six consecutive record highs. The 'Magnificent Seven' tech stocks, including companies like NVIDIA and Alphabet, have been leading the charge in this remarkable rally. However, investors are now questioning whether this euphoria can continue or if the tech sector is about to hit a roadblock. Victor Mupunga, Head of Research at Private Clients, Old Mutual Wealth, shared his insights on the matter. Mupunga highlighted the exceptional performance of the 'Magnificent Seven' in the first half of the year, with the S&P 500 seeing a 15% increase, largely driven by these tech giants. He emphasized that these companies now make up over 30% of the U.S. market, raising concerns about sustainability. As the tech stocks have significantly outperformed in recent years, Mupunga suggested a cautious approach, considering the challenges of maintaining such rapid growth over the long term. The interview delved into the individual performances within the 'Magnificent Seven,' noting the varying returns among the companies. Mupunga pointed out that NVIDIA, a key player in artificial intelligence, had surged by 150%, while Tesla had seen more modest gains. He highlighted the importance of evaluating each company based on its unique drivers and valuation metrics. Despite the strong performance, Mupunga revealed that they had reduced their holdings in some of these stocks due to valuation concerns. When discussing the impact of interest rate cuts on tech stocks, Mupunga acknowledged the potential benefits of lower rates for high-growth companies. However, he emphasized that the success of the tech sector was not solely dependent on interest rates but also on earnings growth. With the upcoming earnings season, he suggested that the financial performance of these companies would play a crucial role in shaping their future trajectory. Overall, while the tech sector continues to bask in the glory of the AI thematic and record highs, investors are urged to exercise caution and closely monitor the individual performances and valuations of the 'Magnificent Seven' stocks. The second half of the year remains uncertain, and the key to sustained growth lies in solid earnings and strategic investment decisions.