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Stocks in the technology sector have created massive wealth for investors in recent years. Fueled by the artificial intelligence (AI) megatrend, tech stocks have delivered gravity-defying rallies that have single-handedly propelled the overall markets higher. This can be gauged from the fact that the “Magnificent Seven” stocks alone collectively added a staggering $5.1 trillion in total market cap during 2023, and the universe of all U.S.-listed stocks would have advanced by just 12.6% last year without the Magnificent Seven's influence, compared to 23.3% with their returns included - and data this year suggests returns are even more lopsided.
However, while some top AI names are already turning the technology into revenue, the widespread investor enthusiasm can also create pockets of overvaluation. For some stocks swept up in the AI narrative arc, the short-term gains in their share prices have run ahead of the fundamentals, even where the longer-term growth story remains intact.
