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Investors weigh in on what to expect from the technology sector into the end of 2023


2023’s surge in technology stocks fizzled in September as rising rates put a heavy dent in the artificial intelligence-fueled rally . As the final quarter of the year kicks into gear, Wall Street’s bracing for another rocky period ahead, but a slew of economic and earnings-related catalysts could create some chances for investors to dip back into their favored names. The Nasdaq Composite capped off its worst quarter since the the second quarter of 2022 on Friday and its worst month since December, with the tech-heavy index falling 4.1% and 5.8%, respectively. Pressure from rising rates and fears of a higher-for-longer Federal Reserve stalled what’s been a blowout run for the sector after one of its most difficult years since the Great Recession in 2008. Some of the biggest losers for the quarter included Enphase Energy , Lucid Group , ASML Holding and Netflix , notching losses between 14% and 28% for the period. .IXIC mountain 2023-07-01 Nasdaq Composite’s third-quarter performance Popular AI plays and technology behemoths also faced some blowback, with declines at Apple (-11.7%), Microsoft (-7.3%) and Advanced Micro Devices (-9.7%) for the quarter. Nvidia and Alphabet dropped 11.9% and 3.9%, respectively, in September but finished the quarter higher. Wall Street’s remained overly bullish on the sector for the better part of the year, placing its bets on the budding multibillion industry poised to balloon the total addressable markets of some heavyweight contenders. And that popular opinion, despite some recent pressure, isn’t going to fade. To be sure, many veteran investors and portfolio managers are bracing for another patch of volatility in the fourth quarter characterized by more sideways action, but these pullbacks offer a prime opportunity to beef up positions in AI mainstays. Meanwhile, a fresh batch of data points may indicate who’s effectively progressing on the technology and help investors weed out the winners from the duds. All eyes on the data Key upcoming economic data points and third-quarter earnings season could play a pivotal role in where stocks end the year, and what happens to some of the biggest names in the industry, according to some key investors. Over the next few weeks, Deepwater Asset Management’s Gene Munster is keeping an eye on September’s consumer price index and nonfarm payrolls report ahead of the start of big technology earnings later in the month. Even if the closely watched inflation print shows some signs of stickiness, or the tightness in the labor market lingers in the jobs data and rates push higher, he expects rosy outlooks and positive earnings report from the giants later in the month to boost market sentiment around technology, and offer more clarity. “Tech investors are freaking out about these next two economic data points,” he said. “The good news is that this should right itself once the September quarter earnings come up.” Confident in the outlook for artificial intelligence stocks, Jennison Associates’ Erika Klauer is also looking toward the third-quarter reporting season as an opportunity to potentially beef up positions in names with above-average revenue gains and growth rates. Along with assessing how companies are using and monetizing AI to their benefit, the technology equity portfolio manager is also on the lookout for emerging opportunities and derivative plays that could appear in the reporting period. Sean Sun, a portfolio manager at Thornburg Investment Management, likened the earnings season to a “gut check” on AI beneficiaries. He’s looking for progress in their AI services and products, and signs that the demand shows sustainability. Meanwhile, some investors who have taken a pause on buying technology in recent weeks are relying on the reporting season, and some exhaustion in the short-term selling, to dip back into the sector. NVDA mountain 2023-07-01 Nvidia’s third-quarter performance Independent Solutions Wealth Management’s Paul Meeks is one portfolio manager taking that nuanced approach. Despite long-term confidence in AI and the sector, worrisome technicals and climbing rates marching to multiyear highs have given him pause in recent weeks. He hopes to gain more clarity on the sector come the third-quarter reporting period. The next Fed meeting, which concludes on Nov. 1, could also offer more guidance on the economic outlook and near-term rate environment. “I am waiting to invest in the sector,” he said. “I just don’t want to catch a falling knife. I believe in my large cap leadership companies, I think they will lead the AI revolution, but I just want to see these stocks kind of exhaust their short-term selling.” Finding opportunities in the volatility Given the volatile economic backdrop, investors and portfolio managers are bracing for another rocky quarter marred by steep pullbacks and sideways actions. But these drawdowns could offer opportunities for long-term investors to snatch up technology bets at bargain prices, said Nancy Tengler. MSFT mountain 2023-07-01 Microsoft’s third-quarter performance “What I’ve learned is that if you if you own high quality companies with strong management teams, they will figure it out,” said the CEO & CIO of Laffer Tengler Investments. “There’s no need to be in a hurry. I don’t know that you buy right here, but if there continues to be a sell off, you dip your toe in and you add modestly to holdings.” In fact, buying stocks when they fall out of investor favor is one of the best ways to make money, and a method Tengler capitalized on last October, when she bought up shares of ServiceNow , Adobe , Microsoft, Broadcom and Oracle . Tengler trimmed some of those positions in May and said she would consider adding as opportunities emerge. Bullish on AI over the long run, she views the technology as a “secular tailwind” poised to improve productivity — and keep these stocks pushing higher. GOOGL mountain 2023-07-01 Alphabet’s third-quarter performance Meeks, who is cautious on the sector in the very short term and awaiting fatigued selling, plans to flock back to his favored AI names when he sees a buying signal. These picks include Nvidia, Microsoft, Meta Platforms and Alphabet. While Jennison Associates takes a longer-term approach to investing, Klauer said some new pockets of opportunity have begun to emerge along with AI. She pointed to a recovery in the personal computing and handset business as consumers look to replace gadgets purchased at the height of the work from home shift. The sector took a heavy beating in 2022 as demand fell of a cliff. Popular AI names Nvidia and Advanced Micro Devices also dabble in this industry, along with some memory — or dynamic random access memory — players, she said. AMD mountain 2023-07-01 Advanced Micro Devices’ quarterly performance Thornburg’s Sun is also closely watching Advanced Micro Devices in the months ahead, supposing that many investors aren’t giving the chipmaker enough credit for its ability to grow share within the AI market. The release of its MI300 chip in the fourth quarter is expected to rival Nvidia’s H100 GPUs. That could serve as an “extreme proof point,” showcasing AMD’s capabilities and quality. He’s also monitoring some software companies with AI strategies such as Crowdstrike . “The companies that will separate themselves are the ones that are going to show resilience this earnings season and start to show some of the positives of AI come through,” he said.

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