Tech stocks have rebounded so well from their year of decline in 2022 that there may be no longer a buying opportunity there.
At least that’s what some Wall Street analysts are saying as they downgrade some of the top performers of 2023 like Tesla (TSLA), Apple (AAPL) and Alphabet (GOOGL).
“It is difficult to model upward our current high single digit level [websites] growth estimates,” UBS analyst Lloyd Walmsley said Monday in a note that downgraded Alphabet shares from Buy to Neutral.
Walmsley joins a growing list of big tech analysts in warning of future bulls in the 2023 rally. Two weeks ago, his UBS colleague David Vogt downgraded Apple from Buy to Neutral, noting that “growth should remain under pressure”. In the past week alone, three analysts downgraded Tesla in less than two weeks.
Crucially, the downgrades don’t say things are looking too bleak for some of the tech stalwarts. In fact, in some cases, analysts still expect stocks to rise.
Downgrades indicate the market is finally correctly pricing future earnings potential, and as a result, stocks could be priced very well where they are today.
“We believe the stock now better reflects our positive long-term view of the company’s growth potential and competitive positioning following the substantial year-to-date rally,” the Goldman Sachs analyst wrote. , Mark Delaney, in a note on Monday.
Delaney downgraded Tesla from Buy to Neutral while raising its price target from $185 to $248. Last week, Morgan Stanley analyst Adam Jonas made a similar move by downgrading Tesla from overweight to equal weight, while raising its price target from $200 to $250.
“I have to be frank with you all,” Jonas wrote. “Although the team has been defending the Tesla OW rating all year, I didn’t see that 111% year-to-date rally coming (the S&P 500 is up 14% year-to-date). the year, for context). We think it’s understandable and are sensitive to changes in the market narrative around the name. We’re not trying to call it “the end” of Tesla’s rally and, based on our discussions, we continue to find a significant degree of investor skepticism/lack of exposure around the name.”
A risk for Tesla: Wall Street continues to debate whether the electric vehicle maker is playing artificial intelligence.
So, Jonas argues, if the AI momentum fades, the stock price could follow.
“While the market might want to dream on the subject of AI, we would prepare to wake up to the sound of a car horn,” Jonas wrote.
Generally speaking, macro-strategists also issue a similar warning. Despite a slew of S&P 500 upgrades in recent weeks, few strategists see potential above 4,500 for the S&P 500. This reflects just over 3% upside for the benchmark for the rest of the year.
One such strategist, Truist co-chief investment officer Keith Lerner, increased his S&P 500 year-end “range” to 3,800-4,500 from a range of 3,400-4,300 earlier in June.
“The tech sector is trading at rich valuations, and concentration at the top is a risk,” Lerner wrote in a note to clients on Wednesday. “But it’s not 2000, not even close, based on valuations and yields. Although technology is extended in the short term and we would be more inclined to add pullbacks rather than aggressively pursue current levels , we still see the sector as longer-term leadership.
Josh is a reporter for Yahoo Finance.
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