JPMorgan optimistic about renewed capital inflows into tech stocks: lower positions and falling valuations create opportunities

According to Jinse Finance APP, JPMorgan's team of strategists believe that as crowded positions decrease, earnings remain 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, giving investors hope to re-engage with the sector.

The team led by Mislav Matejka wrote in a report released on Monday that the pause in the rally over the past three months has resulted in a cleaner positioning structure and share prices that are no longer expensive. Coupled with rising capital expenditures and sustained strong earnings, “this should support investors’ renewed participation in the sector.”

So far this year, technology stocks have continued to significantly lead the S&P 500, but gains have cooled in recent months as the market grows concerned that massive investments in AI may not yield the returns optimists expect. Within the technology sector, the valuations of the US stock “Magnificent Seven” are at the lowest levels in a decade, while semiconductor stocks are navigating a difficult phase—Anthropic’s Dario Amodei and OpenAI’s Sam Altman previously called for coordinated slowdown in the development of advanced AI, further exacerbating the sector’s challenges.

“We doubt there will ultimately be a marked slowdown, as this race remains a matter of survival and a winner-takes-all contest,” Matejka wrote. JPMorgan stated that although a rally as strong as that of the first half is unlikely to repeat, opportunities still exist.

The fact that the “Magnificent Seven” are at decade-low valuations is not just JPMorgan’s view. According to data from Morgan Stanley Wealth Management Global Investment Committee, the valuation premium of the “Magnificent Seven” relative to the other 493 stocks in the S&P 500 is currently only 10%, the lowest in over a decade. However, these seven giants as a whole still enjoy an approximately 45% annual earnings growth advantage.

Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, wrote in a report: “By comparison, we think these mega-cap cloud giants now look simply too cheap.”

Take Nvidia as an example: its forward P/E ratio for the next 12 months is only 18.7 times, while its historical average forward P/E is as high as 36.9 times; Bank of America Securities semiconductor analyst Vivek Arya reaffirmed a “buy” rating, believing that the current 18-times forward P/E is at a seven-year low and represents an “excellent buying opportunity to increase holdings.”

Matejka said that a renewed round of enthusiasm for technology stocks should boost the South Korean stock market, as both Samsung Electronics and SK Hynix are based in South Korea, and it might indirectly benefit emerging market equities as well.

“Given technology’s large weighting, better performance from tech stocks will obviously help the market,” he said. “That said, we don’t think this is critical—the market may not need AI to outperform in order to keep climbing.”