Tech stock stars of 2023: Companies powering S&P 500 rally

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Apple launched its Vision Pro headset at the beginning of June. Other tech stocks that have been on the rise this year include Nvidia, Meta and Amazon. Photo/Jeff Chiu/AP

A clutch of stocks have so far propped up mammoth gains for US indexes in 2023, according to a new analysis.

Broker platform AJ Bell found that just six stocks generated 88% of the S&P 500’s gain in total market cap so far this year, which amounted to an increase of $3.8trn (£2.97trn). Without those, the index’s performance has been underwhelming.

The jump runs contrary to struggles in other parts of the economy, as governments and central banks continue to grapple with the costs of covid and inflation.

At the start of the year there were widespread layoffs among tech giants, signalling a move to an era of cost cutting and margin watching at big companies.

The stock market rally in tech can partially be attributed to the boom in interest in AI, but also investor anxiety about balancing portfolios for ESG. Focusing on environmental, social and governance (ESG) issues has spurred a look towards businesses that are less reliant on carbon, meaning oil and gas has lost out.

As companies and investors alike look to shape the future of their business, here are the stocks that have supported bumper gains in 2023 so far.

Alphabet’s (GOOG) search buffer

A powerhouse of the tech stock world, Alphabet’s Google has continued to woo investors this year as it looks for ways to leverage the AI research unit it has been building over the last decade.

As of mid-June the price per share for Google’s Nasdaq-listed stock had risen from $88.71 to $124.06 since the beginning of the year. While its share price movements are magnified relative to the rest of the market, investors are still betting on it rising even further.

Google’s stock has been propelled by a consensus that it is well positioned to use AI to enhance its advertising and cloud businesses.

“Due to the scale and power of Google’s reach, it provides a big layer of insulation in a downturn, and that’s been evident in Alphabet’s first quarter results showing the benefits of search as such an essential service, despite worries about a looming recession,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Risks remain, though, in how competitors are moving to innovate.

“Microsoft’s integration of generative AI into its search engine Bing could threaten the dominance of Google, especially given the launch of its own AI chatbot, Bard, had some teething problems,” added Streeter. “The stratospheric rise in AI interest is acting as a rocket for Google Cloud’s revenue but this landscape is already shaping up to be ultra-competitive and there is no guarantee that Alphabet will be able to drive into pole position.’’

A Meta (META) identity crisis

Meta CEO Mark Zuckerberg will have to keep up with the market on AI, despite losing key talent. Photo: Jim Bennett/WireImage

Meta’s journey from social media powerhouse to ambitious metaverse tech proprietor has had lots of twists and turns over the last year, with billions sunk into a bet that may not work.

Advertising revenue has been in the spotlight with pressure from a potential looming US recession.

“The group relies heavily on ad spend, and this despite the progress, this is still quite a tough place to be as consumer spending and confidence suffers, particularly with competition so tough, with TikTok now a formidable opponent,” said Streeter.

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What’s more, The Wall Street Journal reported this week that Meta is struggling to keep up in AI, which is becoming a crucial pillar for the future of tech businesses. WSJ found that around a third of its AI researchers had left the business, either due to layoffs or having left of their own accord.

The challenge will now be to rebuild, catch up with competitors and put its research, which has been so far academic in nature, into practice.

Apple’s (AAPL) metaverse bet: Vision Pro

Apple has always been a powerhouse of the tech stock world and 2023 has proved no exception so far.

While Meta’s stock was buffeted from its pivot to metaverse tech, Apple seems to have emerged from its Vision Pro headset launch unscathed.

It remains to be seen whether this bet will work, as the headset, reported to cost as much as £3,499, sits out of the price range of many average consumers.

Semiconductor darling Nvidia (NVDA)

Nvidia Co-founder, president, and CEO Jensen Huang speaks at the Taiwan Semiconductor Manufacturing Company facility under construction in Phoenix. Photo: AP Photo/Ross D Franklin

Making a bet on Nvidia is tantamount to making a bet on AI hardware. That’s according to a recent note by analysts at Morgan Stanley, who raised their price target to $500 from $450 after the company unveiled AI chips.

Shares are already up 200% for the year-to-date earning it a market cap of more than $1trn. So if you’d have invested $1 at the start of the year that would now be worth $3.

“Frankly, the commentary around these markets is more positive than anything we have heard in 29 years of covering semiconductor stocks,” they said last week.

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Following Nvidia’s earnings report, Morgan Stanley said it thinks there is still room for the stock to climb, as spending increases by enterprise departments, existing customers and even governments.

Microsoft’s (MSFT) audacious AI play

Having started the year at $239.58, and risen to $342.33, Microsoft investors have been laughing all the way to the bank so far in 2023.

An early move into AI, via a partnership with OpenAI (the developer of ChatGPT) has put the company in a strong position ahead of peers, and it has regained losses from last year to trade at all-time highs.

Amazon (AMZN)

Bank of America has plastered a ‘buy’ sign on Amazon stock as it appears to have emerged from the pandemic stronger than ever.

Having started the year at $85.82 a share, it now sits at $125.49.

Analysts were encouraged by commentary that retail margins could improve beyond pre-pandemic levels. Going forward despite the long list of potential competitors across different sectors such as retail, media and cloud computing.

“The core retail/delivery business was a big beneficiary of cheap labour, cheap energy and fuel, cheap money and cheap goods,” notes Mould. “Even then its operating margins were never that fat – mid-single digit at best across the whole group – so if we are entering a new era where all four of those are more expensive then the retail arm does face some potentially large tests, although right now weaker oil prices, Government support schemes and decent pay rises for many are helping to support consumer spending.”

What’s next for the S&P?

While investors are cheering and companies get sharp elbowed over AI, the lack of diversity in the S&P 500 could spell trouble for future gains in the index.

“Such a reliance upon a select list is usually a bad sign, not a good one,” said AJ Bell investment director Russ Mould. “The benchmark may need better breadth if it is to kick on and challenge its closing all-time zenith of 4,797 on 3 January 2022.”

Mould added that if something were to go wrong with just one of the top stocks, it could knock out the entire index.

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