“Wall Street veteran” echoes Wells Fargo’s bullish view: U.S. tech stocks fall out of favor, long-term investing brings an “attractive buying opportunity”

Zhitong Finance APP learned from senior strategist Ed Yardeni (Ed Yardeni) that after U.S. tech stocks pulled back from last year’s historical highs, they have returned to levels that are attractive for investors who are willing to make long-term investments. Uncertainty about how artificial intelligence will affect the software business, along with the impact of the Iran war, caused information technology stocks to fall 13% from the historical high they hit since October last year. During this period, the industry’s earnings expectations accelerated upward, pushing its price-to-earnings ratio to 20.6x, which is basically in line with the S&P 500’s P/E ratio of 19.6x.

“For investors with longer investment horizons, this is a very attractive entry point,” Yardeni wrote in a report he sent to clients last Sunday.

The S&P 500 Information Technology Index closed up 0.5% on Monday , marking its fourth consecutive day of gains and setting the longest winning streak since late January. However, driven by factors including overvaluation, the possibility that artificial intelligence may upend the software industry, and the spread of risk-averse sentiment, the sector is down 7.1% year to date so far this year .

Information technology and communication services account for the overwhelming majority of the S&P 500 index’s market value. Yardeni said this proportion has already exceeded the peak during the dot-com bubble period. He noted that while this comparison may make some people uneasy, compared with 26 years ago, today’s market is highly concentrated in the information technology and communication services sectors, “with stronger earnings support.”

“Today, the expected earnings contribution from these two industries is 42.0%, just 1.6 percentage points higher than their market value share,” Yardeni said. “At the height of the dot-com bubble period, the gap between the market value share and the earnings share was more than 15 percentage points. Today’s level of concentration is only natural.”

Yardeni is not the only investor who thinks the valuation of technology stocks has reached an enticing level. The investment research institute of Wells Fargo has upgraded its rating for the sector from “neutral” to “overweight,” citing that the sector has underperformed the S&P 500 index and that the widespread adoption of artificial intelligence supports its solid long-term development outlook.

The company’s global investment strategy team said that although concerns remain about valuations, capital expenditures, and the disruptive impact brought by artificial intelligence, the fundamentals of the information technology industry are still strong. They gave the example of double-digit earnings growth in the fourth quarter. The strategists also pointed out that since the outbreak of the U.S.-Iran war, the performance of the information technology industry has outpaced the S&P 500 index, highlighting the industry’s long-term growth and quality characteristics.

“The gradual pullback over the past few months has brought valuations to more attractive levels, and we believe that the bearish sentiment around the sector has gotten a bit too far,” the company’s strategists said.