J.P. Morgan is optimistic that technology stocks are once again favored by capital: positions cool down and valuations fall to free up space

The Zhitong Finance App learned that the J.P. Morgan strategist team believes that as position congestion declines, profit performance is strong, and valuations become more realistic, technology stocks will regain some of the momentum lost since the end of the first half of the year, and investors are expected to re-enter this sector.

The team, led by Mislav Matejka, wrote in a report released on Monday that gains have been suspended over the past three months, making the position structure cleaner, and stock prices are no longer expensive. Combined with rising capital expenses and continued strong profits, “it should support investors to re-participate in this sector.”

Technology stocks are still leading the S&P 500 index by a large margin this year, but gains have cooled down in recent months, and the market is worried that huge investment in AI may not bring the returns that optimists assume. Within the technology sector, the valuation of the “Big Seven” of US stocks is at its lowest level in 10 years, while semiconductor stocks are coming out of a difficult phase — Anthropic's Dario Amodei and OpenAI's Sam Altman previously called for coordination to slow down advanced AI development, making the sector's plight worse.

“We doubt there will be any significant slowdown in the end, as this is still a game about survival, winner-take-all,” Matejka wrote. J.P. Morgan said that although the increase in the first half of the year is unlikely to be repeated, opportunities still exist.

The “Big Seven” valuation is not an isolated judgment of J.P. Morgan Chase. According to data from the Morgan Stanley Wealth Management Global Investment Committee, the valuation premium of the “Big Seven US stocks” compared to 493 other stocks in the S&P 500 index is currently only 10%, the lowest level in more than 10 years, and the seven giants as a whole still have an annual profit growth advantage of about 45%.

Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in the report: “By contrast, we think these hyperscale cloud giants simply look too cheap right now.”

Taking Nvidia as an example, its forward price-earnings ratio for the next 12 months is only 18.7 times, while its historical average forward price-earnings ratio is as high as 36.9 times; Bank of America Securities semiconductor analyst Vivek Arya reiterated the “buy” rating, believing that the current 18-times forward price-earnings ratio is at a seven-year low and is an “excellent opportunity to buy more positions.”

Matejka said that a new round of demand for technology stocks should boost the Korean stock market. Samsung Electronics and SK Hynix are both located in South Korea and will indirectly benefit emerging market stocks.

“Given the huge weight of technology stocks, a better performance of technology stocks will obviously help the market,” he said. “Having said that, we don't think this is critical; the market may not need AI to outperform to keep rising.”