AI is one of the hottest topics in the investment world today and tech stocks like Nvidia (NVDA), Microsoft (MSFT), Broadcom (AVGO), and Oracle (ORCL) are soaring because of it. This year, NVDA stock has more than doubled, while MSFT, AVGO, and ORCL have all grown by more than 20%. This impressive growth has placed these stocks further into the momentum category, meaning they have earned high returns but come with low volatility. Now, it appears these companies are about to have an even greater presence in a momentum index due to a rebalancing of the iShares MSCI USA Momentum Factor ETF (MTUM). As of May 26, The sector weight for technology within MTUM will jump by 18 percentage points.
Christopher Harvey, chief strategist at Wells Fargo suggests that the growth will be attributed to the tech industry – specifically semiconductors (NVDA and AVGO) and software (MSFT and ORCL). Although the MTUM’s market value stands at around $9 billion, which is substantially smaller than the combined trillion dollar value of the stocks mentioned, there might still be some pressure placed on them due to buying activity. Investors could jump on this chance to take advantage of the extra boost these stocks may experience.
Kevin Simpson, founder and chief investment officer of Capital Wealth Planning believes that the new change could potentially affect the stock prices, either by bumping them up or counteracting with possible profit-taking. He also notes the importance of AI in the market and the returns it may bring and the acknowledgment of this technology by the introduction of these stocks into the momentum ETF.
With the surge in popularity of AI and its applications, the likes of NVDA, MSFT, AVGO, and ORCL might continue to see above-average returns, as long as investors use caution and take into account the variables that could possibly sway the market.
