Key Takeaways:
Bank of America's Savita Subramanian advised investors to avoid Magnificent Seven and megacap tech stocks that are spending heavily on capital expenditure.
"I don't see any reason to continue to buy Magnificent Seven or megacap tech stocks that are the capex spenders," Subramanian, head of US equity and quantitative strategy at BofA, said.
The call comes as US equity funds posted US$17.2 billion of outflows in the week through July 1, the fastest pace since March, according to BofA citing EPFR data. The Magnificent Seven group lost about 2 percent on a total-return basis in the first half, even as the broader S&P 500 gained 9 percent through June 30. Semiconductor and computer hardware names drove roughly 87 percent of the index's first-half advance, Barclays estimated.
The warning from one of Wall Street's most closely followed strategists adds to growing skepticism around the sustainability of the AI-driven rally. Investors rotated out of US stocks and into international markets last week, with Japanese equities drawing their biggest inflows in seven weeks at US$1.9 billion, BofA data show.
Subramanian's view targets the cohort of megacap technology companies that have committed tens of billions of dollars to AI infrastructure, raising questions about returns on that investment. The S&P 500's reliance on a narrow set of names for its gains leaves the index vulnerable to a rotation if sentiment shifts further.
The caution shows that even bullish strategists see limited upside in the market's biggest winners. Investors will watch second-quarter earnings reports from the megacap tech group later this month for signs that AI spending is translating into revenue growth.
This article is for informational purposes only and does not constitute investment advice.
