According to a recent report by Morgan Stanley, Apple Inc. has surpassed Microsoft Corp. as the most “under-owned” large technology stock among major institutional investors. This development could potentially bode well for the consumer-electronics giant’s stock performance.
Morgan Stanley analysts explained that stocks tend to exhibit a technical pull upwards when their active ownership is significantly lower than the market, and vice versa. In other words, when a particular stock is under-owned by institutional investors, it often leads to positive stock performance.
To determine Apple’s position in this regard, the analysts examined the ownership of 15 large tech stocks and compared their average weight in the top 100 activity-managed institutional portfolios, as well as their relative weighting in the S&P 500 SPX index.
Based on their quantitative analysis of historical ownership data, the analysts found a statistically significant relationship between low active ownership relative to the S&P 500 and future stock performance, after adjusting for market capitalization and earnings beats.
This new development presents an interesting opportunity for Apple Inc. as it aims to secure a title it has never held before, further solidifying its position in the industry.
Microsoft vs. Apple: A Shift in Ownership
In a recent analysis, Apple has claimed the title of the most under-owned big tech stock, a position that Microsoft had held for four years. This significant shift in ownership levels for Apple comes after the second quarter saw the largest increase in under-ownership since Morgan Stanley began tracking these trends.
The analysts at Morgan Stanley attributed this change to multiple factors. Firstly, Apple’s substantial weighting in market indices, coupled with its outperformance of the market by 30 points as of late July, has led many investors to take notice. Additionally, concerns about the disparity between Apple’s valuation and its near-term fundamentals have also played a role.
It is worth noting that in July, Apple’s price-to-earnings multiple reached its peak at 29-times calendar 2024 estimates. However, the company’s forecast suggests the potential for a fourth consecutive quarter of declining revenue on a year-over-year basis.
On the other side of the spectrum, Meta Platforms Inc., formerly known as Facebook, experienced a contrasting trend. According to Morgan Stanley’s analysis, Meta Platforms Inc. became the most “over-owned” stock it has been since 2014. Notably, it is the only company among the five mega-cap tech players whose institutional ownership in the second quarter surpassed its weighting in the S&P 500.
This shift in ownership highlights the dynamic nature of the tech industry and underscores the importance of closely monitoring market trends and investor sentiments.
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Red Flags Waving for Tech Stocks as AI Bounce Fades, China Fears Escalate
In recent times, there have been growing concerns about the stability and future prospects of tech stocks. The initial excitement surrounding the AI industry has started to fade, and investors are beginning to take notice. Moreover, fears regarding China’s impact on the sector have continued to escalate.
The Fading AI Bounce
Once hailed as the future of technology, the AI industry is experiencing a downturn. The initial enthusiasm that propelled tech stocks to new heights has begun to wane. With the hype subsiding, investors are becoming more cautious about the sustainability of AI-driven companies.
Escalating China Fears
Another significant factor contributing to the red flags waving for tech stocks is the increasing anxiety over China’s influence. As tensions rise and geopolitical uncertainties grow, investors are growing wary of the potential risks associated with Chinese companies operating in the tech sector.
Conclusion
As the allure of AI fades and concerns surrounding China’s impact heighten, it has become essential for investors to carefully evaluate the risks and potential rewards of holding tech stocks. The landscape is shifting, requiring investors to adapt to these changing dynamics and make informed decisions that align with their investment strategies.
