Citi has adopted a more cautious stance on the technology sector, downgrading its weighting recommendation to “market weight” from “overweight.” Strategist Scott Chronert cited the divergent performance of the “Magnificent 8” stocks and noted that while semiconductor earnings momentum remains strong, it creates a scenario where it is difficult to envision every player on the AI and tech trajectory emerging as a winner.
The broader market reflected similar apprehension on Friday, with technology stocks leading declines following a New York Times report that OpenAI might delay its initial public offering until next year. Chipmakers bore the brunt of the selloff; Nvidia slipped approximately 1%, Micron fell roughly 4%, and the VanEck Semiconductor ETF (SMH) retreated 3%.
Despite the near-term caution, Chronert affirmed that AI-driven spending will continue to propel S&P 500 earnings. However, he warned that the sector’s recent strength intensifies the debate regarding the return on investment for AI-related capital expenditures.
The reassessment arrives as Wall Street concludes a robust second quarter, with the S&P 500 up over 13%—its best quarterly showing since Q2 2020. Chronert remains bullish on equities overall, maintaining a year-end S&P 500 target of 8,100, the highest in the CNBC Market Strategist Survey. Nevertheless, he anticipates a rotation out of technology, driven by expectations that weaker oil prices will ease inflation concerns in the third quarter, encouraging broader market participation.
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