Recently, the "public opinion" surrounding US tech stocks has shifted dramatically: we've seen the market turn towards industrial stocks, cyclical stocks, and assets related to interest rate cuts, while tech giants are struggling.
However, Morgan Stanley Andrew Slimmon, senior portfolio manager at the investment management department, has recently released a startling view – large-cap tech stocks are poised for a stunning rebound. After months of lackluster performance, he believes the market is underestimating the sector's next move.
According to data from PortfoliosLab, the Industrial Select Sector SPDR Fund (XLI) rose 2.80% in the past month, while the Technology Select Sector SPDR Fund (XLK) fell 0.33%. Although the technology sector still outperformed last year, the outlook is clearly not optimistic.
However, Slimmon believes that the valuations of large-cap tech stocks are much more reasonable than those of many other sectors that investors have flocked to, and that the sell-off in the fourth quarter was not significantly related to deteriorating fundamentals.
"In fact, this is mainly because investors are chasing investments that feel safer and offer more immediate returns, as expectations of interest rate cuts have become the focus of market attention," he added.
The key to supporting Slimmon's view is that "profitability has never collapsed."
He pointed out that despite strong earnings, large-cap tech stocks have lagged behind, causing their valuations to decline as we head into 2026. This is a stark contrast to what we've seen in cyclical and industrial stocks, where prices reflect optimism about loose monetary policy.
Slimmon also quoted a classic saying in the investment world to explain the growing disconnect between price movements and performance: "In the short run, the market is a voting machine; in the long run, it is a weighing machine." This wisdom from Benjamin Graham, the father of value investing, is not only the cornerstone of Buffett's investment philosophy but also a compass for investors to remain rational in volatile markets. .
A short-term voting machine means that daily stock market fluctuations are determined by the collective sentiment of countless investors. Every buy and sell transaction is like a "vote," driven by greed, fear, and herd mentality, rather than true value. But in the long run, prices will eventually revert to value. Just as a convenience store has intrinsic value, a company's stock price will reflect its true value in the long run—profitability, free cash flow growth, and sustainable competitive advantage.
Slimmon stated, "Interestingly, industrial stocks need earnings to support their expanding valuations, while tech stocks, despite strong earnings, haven't seen their valuations grow accordingly. You know, many tech stocks, including the 'Big Seven,' performed very poorly in the fourth quarter. However, there's currently no indication that their earnings are in trouble."
He also cited data emphasizing that, overall, the performance of large technology companies has been outstanding. FactSet data shows that the "Big Seven" tech giants' third-quarter earnings grew 18.4% year-over-year, far exceeding the 11.9% growth rate of the other 493 S&P 500 companies. The company predicts that the "Big Seven" will achieve earnings growth of 19.8% in the fourth quarter of 2025.
Finally, Slimmon also refuted claims about large-scale artificial intelligence. He addressed concerns that related IPOs or debt issuances might impact the market, but stated that he did not believe this would have a significant negative impact in 2026.
(Article source: CLS)
