Big tech stocks slid throughout most of the week amid a risk-off pivot, but some analysts say there are several structural reasons to remain bullish on tech giants.

The Roundhill Magnificent Seven ETF (MAGS) shed about 3.5% over the first four days of the week amid growing concerns about an AI bubble. (The ETF recouped most of its losses on Friday as stocks rallied on optimism about impending rate cuts.) A recent MIT study found that 95% of companies surveyed reported no material return on their AI investments. OpenAI's Sam Altman late last week reportedly said he thought investors had become "overexcited" about AI.

Reports that Commerce Secretary Howard Lutnick expressed interest in the U.S. government converting all CHIPS Act grants into equity added to tech stock jitters.

But according to a Morgan Stanley analysis of 13-F filings, the largest active institutional money managers are more underweight mega-cap tech stocks than at any other point in the last 16 years. The mega caps followed by Morgan Stanley—Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), and Meta Platforms (META)—were under-owned relative to their S&P 500 weight by an average of 140 basis points at the end of the second quarter, a 24-basis-point increase from Q1. 

Nvidia, which became the world’s first $4 trillion company in early July, is the most under-owned of the bunch; its weight in institutional portfolios is about 2.4 percentage points below its weight in the S&P 500. Microsoft (2.39%), Apple (1.66%), and Amazon (1.4%) are also significantly under-owned.

According to Morgan Stanley, "after adjusting for market cap and earnings beats, there is a statistically significant relationship between low active ownership relative to the S&P 500 and future stock performance." That is, stocks that are being given short shrift by institutional investors tend to rise. 

Retail investors also don't appear to be worryingly optimistic. The latest American Association of Individual Investors sentiment survey showed bullish sentiment has declined by nearly 10 percentage points over the last four weekly readings. Over the same period, bearish sentiment among survey respondents increased to nearly 45% from 33%.

"While some near-term tech volatility is not surprising given the run-up in valuations, we advise investors against becoming overly defensive for several reasons," wrote UBS analysts in a note Thursday. 

First, tech earnings were very strong in the second quarter. The majority of tech companies beat sales and earnings estimates, and forward guidance, which tends to decline throughout the reporting season, held up. Cloud revenue grew by an average of more than 25% at the three largest providers.

In addition, internet and software companies are expected to continue to benefit from AI integrations. While AI revenue growth hasn't quite kept up with investments, "we are seeing encouraging signs of progress as more companies embed AI into core products and services," the analysts wrote.