U.S tech valuations: Overcooked or underdone?

Big tech's dominance in the market is starting to show signs of weakness as earnings reports from the Magnificent 7 companies fail to impress investors, resulting in muted stock reactions. Neil Wilson from TipRanks and Roy Mutooni from Sanlam Investments recently sat down with CNBC Africa to discuss the case for investing in expensive Big Tech stocks. Neil pointed out that there is a growing fear of overvaluation in the market, with concerns about late-stage bull market dynamics. The incremental record highs and rotation out of some tech stocks are clear indicators of this trend. Investors are now trimming their exposure to these high-flying tech names due to their lofty valuations and increased capital spending on AI. Roy added that despite the high spending, tech companies are reaffirming their commitment to AI, signaling a continued focus on innovation and growth. When it comes to the recent earnings reports, Neil highlighted Meta as a standout performer, with their stock price up by 30% in the last six months. However, other tech giants like Alphabet fell slightly short on revenues and announced significant capex on AI spending. Looking ahead, the question remains whether tech companies can sustain their momentum in the long term, especially as competition and policy risks loom large. Roy emphasized the need for diversification, as non-tech stocks are now joining the earnings growth profile in the market. The conversation then shifted to Chinese tech stocks, which have been gaining momentum in recent weeks. Roy noted that the combination of lower valuations, reduced capex requirements, and a more favorable political environment in China has made these stocks attractive to investors. The upbeat earnings and AI enthusiasm in China have sparked renewed interest in the sector. Neil pointed out that monitoring US-China trade relations, tariffs, and political developments will be crucial in understanding the future movements of Chinese equities. As the market remains volatile and investors grow increasingly cautious, the focus shifts to upcoming events such as NVIDIA's earnings, trade negotiations, and inflation data. The sentiment in the market is mixed, with many investors expressing concerns about overvaluation and a potential market correction. The uncertainty surrounding tariff policies and trade relations between major economies adds another layer of complexity to the tech sector's outlook. In conclusion, while tech valuations in the US market may be under scrutiny, the evolving landscape presents opportunities for investors to explore diverse investment options beyond traditional tech giants. As the market dynamics continue to shift, staying informed and agile in response to changing trends will be essential for navigating the uncertain waters of the tech sector.