The S&P 500 (SP500) (NYSEARCA:SPY) (IVV) (VOO) had a stellar year, with its index increasing by nearly 10% and its equal-weighted S&P (RSP) gaining 1%. Big Tech stocks have been one of the major drivers of this uptick, with the use of artificial intelligence and ChatGPT, a virus-resistant chatbot, greatly helping to boost tech stocks from large companies like Microsoft and Nvidia.
Chris Harvey from Wells Fargo notes that Market growth (IWF) versus Value (IWD) is very much similar to the situation of 1999 and 2000, with the AI premium being present for the S&P 500 heaviest weights. Jim Reid from Deutsche Bank observes that massive tech stocks have been greatly bolstered by the AI upswing and ChatGPT’s debut on November 30th. The “top ten” American mega-cap tech stocks, which have a total market share of 33.3%, have been a large contributor to S&P 500’s 8% growth.
Reid also notes that in spite of people fearing a recession, the S&P 500’s performance has not been affected due to the presence of mega-cap tech. If these ten mega-cap tech stocks are excluded, the rest of the “S&P 490” index is actually negative. This shows the large role these mega-cap tech stocks have played in propelling the S&P 500 to success – at least for now.
BofA strategist Michael Hartnett goes even further in dubbing this surge of tech stocks a ‘baby bubble’, due to the current situation of 5% inflation, 3% unemployment and 7% budget deficits slated for 2023. Hartnett predicts that the ‘pain trade’ of next 12 months would be the federal funds rising over 6% as opposed to the current 3%. He also notes that the current surge in tech stocks shares its roots with the surge of internet stocks back in 1999, noting that a bubble always begins with easy money and ends with higher rates of interest.
Lastly, Nvidia and Microsoft, two of the large companies heralded by the success of AI, have seen returns of 108% and 30.6% so far this year, respectively. Their success positions them well in the age of AI and Machine Learning as the larger tech giants continue to dominate.
Nvidia is an American technology company specializing in the development of hardware-accelerated graphics processors and artificial intelligence algorithms. Founded in 1993 and based in Santa Clara, California, the company creates products for gamers and professionals alike.
Jim Reid is a seasoned banker and strategist currently working for Deutsche Bank as the Global Head of Fundamental Credit Strategy. He is a respected figure in the industry for his insights on the global markets and provides investor advice through his writing.
