According to the latest research from Morgan Stanley, major technology stocks including Alphabet (GOOGL.US), Amazon.com (AMZN.US), Apple (AAPL.US), Meta Platforms, Inc. (META.US), Microsoft (MSFT.US), and NVIDIA (NVDA.US) are experiencing their most significant underweighting by actively managed funds in 16 years, with the gap between portfolio allocations and S&P 500 index weights widening further in the second quarter.
Analyst Eric Woodring noted in an interview that this seemingly contradictory phenomenon could actually be bullish for technology stocks. He pointed out that current investors and actively managed funds are not only underweight on tech giants overall, but are even insufficiently allocated to NVIDIA despite its outstanding performance.
Woodring explained that tech giants hold extremely high weights in major indices, and holding multiple related stocks simultaneously creates concentration risk, which has become a key reason for institutional underweighting. Taking Apple as an example, its underweight positioning stems primarily from weak revenue growth and multiple headwinds including geopolitical and regulatory pressures.
However, Woodring maintains an optimistic outlook on Apple's prospects, citing three supporting factors: First, Apple successfully avoided potential earnings per share impacts of up to 10% from Section 232 tariffs; second, product and services profitability exceeded market expectations; third, artificial intelligence strategy shows new developments, including increased capital expenditure and potential deployment of second-generation AI technology.
The research also revealed performance divergence among tech giants: Microsoft, Meta Platforms, Inc., and NVIDIA outperformed the S&P 500 index, while Alphabet, Apple, and Amazon.com lagged behind. Woodring specifically mentioned that Meta Platforms, Inc. maintained overweight status for most of the past four years due to solid performance, but current holdings have fallen below index weight.
Data shows that as of the second quarter, large technology stocks overall were underweight by approximately 140 basis points relative to S&P weights, expanding from the 115 basis point gap at the end of the first quarter.
Woodring concluded: "Current positioning levels are lower than three months ago," suggesting that institutional funds still have room to increase holdings, potentially providing underlying momentum for future gains in technology stocks.
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