Deutsche Bank has shifted back into bullish territory on US technology equities, moving to an overweight position, as reported by Reuters on Monday. This stance reverses a more defensive call issued roughly three weeks prior, when strategists had downgraded the sector to neutral.
On October 9, the bank had adopted a cautious view, citing a risk-reward imbalance that favoured holding back. However, in a Friday communication to clients, the institution's strategists indicated that the sharp decline in valuations had opened a compelling window for accumulating positions. They contended that much of the uncertainty surrounding artificial intelligence investments had already been priced into current share values.
Binky Chadha, the bank's chief strategist, and Parag Thatte authored the note, according to Investing.com. The pair pointed to a substantial erosion of market capitalisation across the technology-heavy Nasdaq 100 during October, which exceeded $2 trillion. Concerns about the pace of AI-related spending, combined with disappointing earnings from the so-called Magnificent Seven firms, had triggered the downturn. Alphabet's stock, for instance, declined more than 12% following its most recent quarterly report.
The strategists observed that large-cap technology and growth equities had fallen approximately 11% over a three-week span, while the broader S&P 500 excluding tech had climbed nearly 6%. This divergence had pushed technology shares toward the lower end of their historical valuation range relative to the wider market.
According to Deutsche Bank's analysis, similar depressed valuations have historically signalled attractive buying moments. Following previous rotations back into the sector, technology stocks have typically delivered roughly 32% gains and outperformed the rest of the S&P 500 by approximately 30 percentage points on average.
The bank further noted that portfolio allocations to technology remain lean relative to the strength of underlying corporate earnings. This positioning leaves investors with substantial capacity to increase their holdings should profit growth persist.
Nevertheless, Investing.com highlighted that the strategists acknowledged several headwinds. These include potential regulatory changes following US midterm elections and broader geopolitical tensions. The bank also cautioned that share prices could face additional pressure if a significant market shock materialises.
Source: The Next Web
