During the August stock market crash, hedge funds and retail investors aggressively "buy the dip" on tech giants
In August, the US stock market experienced a sharp decline, prompting investors to heavily buy into tech giants such as NVIDIA and Apple. The Federal Reserve's reduced expectations of combating a recession led to a market rebound. The Nasdaq 100 index recorded its largest weekly gain since November last year, returning to its July high. Analysts point out that large-cap tech stocks have strong growth potential and market stability, making them attractive even in an economic slowdown
According to Zhitong Finance, on August 5th, the Nasdaq 100 index plummeted more than 5% within seconds of the opening, confirming concerns about the bursting of the tech bubble. Just two weeks later, after several rounds of positive data, almost all worries were quickly set aside. This turned out to be the most severe intraday tech stock sell-off since 2022, seen by investors as a reset that eliminated some of the valuation bubbles - they have re-entered.
Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial, said: "The sell-off in August is the closest buying opportunity we've seen in tech stocks in a year. In an environment of slowing economic growth, large tech companies provide investors with an opportunity to invest in companies that not only have strong growth but are also more insulated from the economic backdrop."
Since then, as data shows the U.S. economy continues to expand, inflation is easing, the stock market has seen a significant rebound, reigniting speculation about a soft landing, which is the main driver of this year's stock market rally. The Nasdaq 100 index has risen in the past seven trading days, marking the largest weekly gain since November last year, and returning to the record high set on July 10th.
Leading this round of rebound are the heavyweight stocks that dragged down the market. NVIDIA (NVDA.US) has rebounded by about 26% from this month's low, adding over $600 billion in market value. Apple Inc. (AAPL.US) has risen for 8 consecutive days, just 4% away from its all-time high. The index of the seven tech giants has risen by over 10%.
This does not mean that concerns about the long-term prospects of the industry have disappeared. But some worries that triggered the stock market plunge, such as the increasing difficulty in proving that high valuations are reasonable, and concerns that the Fed may need to shift towards a mode of combating recession - have once again taken a back seat.
Robert Stimpson, Co-Chief Investment Officer and Portfolio Manager at Oak Associates, said: "Given the market position of large tech stocks, exposure to artificial intelligence, strong financial resources, and robust profits, they should receive a valuation premium. We believe that tech has both offensive and defensive characteristics."
This rebound has received support from multiple parties. Data from Goldman Sachs' bulk brokerage firms shows that hedge funds took advantage of last week's stock market plunge to heavily buy tech stocks, as well as other sectors such as communication services and basic consumer goods. Companies themselves are also active buyers, with Goldman's buyback department reporting record orders from corporations. Data from Vanda Research shows that retail buyers have also flocked in, marking the largest net buying activity in the past 12 months. Of course, the macro background changes quickly, with weak employment data now being overshadowed by a surge in retail sales, and it is very likely to turn in another direction again. However, these companies are still continuing to create huge profits. While the profit growth of tech giants is slowing down, it is still huge by traditional standards, allowing them to continue to invest heavily in artificial intelligence. With four out of the five major tech companies in the United States - Microsoft (MSFT.US), Alphabet (GOOGL.US), Amazon (AMZN.US), and Apple - having reported earnings, the group is expected to see a profit increase of 35% for the quarter ending in June, compared to a 13% increase in the S&P 500 index.
The investment spending driven by these profits is a good sign for chipmaker NVIDIA, which has been the biggest beneficiary of artificial intelligence development. NVIDIA is expected to report earnings on August 28th, and investors will closely watch CEO Jensen Huang's outlook.
While NVIDIA is expected to continue to reap handsome rewards, it is currently unclear whether these companies will make significant breakthroughs in artificial intelligence. Despite the recent rebound in the stock market, these doubts may continue to linger over the market. Saglimbene of Ameriprise said, "Without a clear artificial intelligence investment payback period, buying into large tech companies all at once can make people more uneasy. This situation may continue for the next few quarters."