Key Takeaways
- What’s changed with regards to the world’s biggest tech companies is the competition, according to Wall Street expert Ed Yardeni, who got less bullish on Big Tech today.
- BofA thinks an eventual bubble in AI is likely, but also believes core U.S. tech names are not yet frothy.
Why ask for the moon, when there are plenty of stars to go around? That’s the latest take from a Wall Street expert regarding the S&P 500.
Dr. Ed Yardeni, founder of Yardeni Research, said on Monday that his firm was ending its 15-year recommendation that investors be overweight the S&P 500’s tech and communications sectors—effectively meaning they should prefer them to the rest of the stocks in the index. The prominent Wall Street economist and market strategist joins other investment professionals who have recently turned sour on the tech behemoths that have have dominated the benchmark index.
What’s changed about the Magnificent 7—Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), and Tesla (TSLA)—is that they’ve started to more “aggressively” compete with each other, and have rivals coming out of the woodwork regularly, Yardeni told media networks, including Bloomberg TV and CNBC.
WHY THIS MATTERS TO YOU
Investors have put their dollars in the world’s biggest tech companies, betting that their scale will allow them to have an edge in artificial intelligence—some Wall Street experts are backing away from that premise as new challengers emerge.
The problem is that betting on the Mag 7 has worked too well, with the tech and comms sectors now accounting for a record 45% of the benchmark index’s market capitalization, Yardeni said. While that may be justified by their earnings share also climbing, their overall riskiness compared to the rest of the index has also risen.
“They used to just operate in their own moats and kind of leave each other alone, but I think we’re now having a competitive situation,” Yardeni said on CNBC. “Not only that but I think we’re going to find out startups are coming [to] challenge some of their technologies.”
Yardeni referenced China’s startup DeepSeek, which rattled chipmakers and markets in January when it rolled out a model said to rival OpenAI’s ChatGPT at a fraction of the cost. DeepSeek’s latest models are “just as good as” Google’s Gemini 3, he said. He now recommends market-weighting tech and comms, effectively a neutral position, and overweighting the financials, industrials, and health care sectors.
Related Education
Some other markets watchers are also sounding messages of conservatism—even if they don’t think the AI trade is done yet. While Bank of America analysts think it “likely” that the AI investment cycle ends with “a few winners and many losers,” they also expect those to be identified much later, or as early as 2027. At present, they say, there are signs of “froth around the edges, but not yet in the core of U.S. tech.”
BofA’s chief investment strategist Michael Hartnett continues to recommend going “BIG”—that is, showing a preference for bonds, international stocks, and gold. He also likes mid-cap stocks, but is short investment-grade bonds and the U.S. dollar into the next year.