Technology’s artificial intelligence-driven surge this year is giving some investors pause, heightening fears that AI euphoria may be the next bubble to pop. But despite some similarities, Piper Sandler notes the setup looks a little different. .SPX YTD mountain S & P 500’s 2023 performance Technology stocks have gotten a boost this year as enthusiasm around artificial intelligence grows, and the recent banking crisis resets expectations for Federal Reserve policy. “Today’s ebullient news and performance in the technology sector echoes that of what took place in early 2000,” wrote chief investment strategist Michael Kantrowitz. “An ‘it’s different this time’ mentality is a commonality of an asset bubble, where investors extrapolate into the future and believe that negative outcomes will be avoided pause, heightening fears that AI could be the next Internet bubble.” He pointed out that similarities do exist between current AI euphoria and the 2000 tech bubble. Those include narrow market breadth and weakness in retail. However, technology as a sector today appears “far more profitable,” Kantrowitz said, adding that steady names able to showcase “proven concepts and superior fundamentals” remain among the leaders. Meanwhile, stocks with negative earnings continue lagging in this cycle, he noted. The majority of S & P 500 technology stocks still sit 20% off their peaks even as many popular names notch all-time highs. AVGO YTD mountain Broadcom shares in 2023 Given this setup, the firm highlighted its favorite top-ranking technology stocks to buy, with high earnings growth, return on equity and a low beta. These stocks also boast a high earnings revision ratio. “We continue to favor profitable growth as an investment theme as we expect that the lagged effects of tightening will continue to weigh on economic growth,” Kantrowitz said. A handful of outperforming semiconductor stocks and chip equipment manufacturers made Piper Sandler’s list, including Broadcom , On Semiconducto r, KLA Corp and Synopsys . All three stocks have surged more than 20% in 2023. Like many peers, Broadcom shares have jumped nearly 44% as enthusiasm around AI mounts. Bank of America recently upped its price target on shares in the wake of its multibillion-deal to make 5G frequency components for Apple , calling it the “most underappreciated AI beneficiary.” SMCI YTD mountain Super Micro Computer shares in 2023 Piper Sandler also highlighted shares of the server and storage systems provider Super Micro Computer , which have more than tripled this year. Rosenblatt recently initiated coverage of the stock, saying that the company should benefit from growing demand for high-speed and energy-efficient solutions. Pure-play AI winners, including Adobe and OpenAI backer Microsoft also made the cut. — CNBC’s Michael Bloom contributed reporting
