The Magnificent Seven Tech Stocks: A Hedge Fund Favorite

Key Takeaways:

• Hedge fund managers are heavily investing in the “Magnificent Seven” tech stocks, showing high confidence in these companies.
• Optimism around artificial intelligence (AI) is boosting stock prices for companies like Nvidia and Microsoft.
• Investors are also optimistic about interest-rate cuts and a “soft landing” but have concerns about inflation and the upcoming U.S. election.

Long bets on the so-called “Magnificent Seven” have become increasingly popular among hedge fund managers, with 69% of them considering it the most crowded trade in a recent Bank of America survey. This high concentration around the tech stocks is the highest since over 70% of investors were betting on U.S. tech stocks back in October 2020.

The group—Amazon, Apple, Microsoft, Nvidia, Tesla, Meta Platforms, and Google parent Alphabet—experienced significant growth last year. However, confidence in investing in these companies wavered earlier this year as their performance varied, with some stocks rising while others fell.

Survey Shows Continued Confidence in the Magnificent Seven

Bank of America’s monthly survey of 238 hedge fund managers with over $721 billion in assets under management (AUM) revealed that institutional investors are still confident in the Magnificent Seven. Nearly 70% of the investors considered the long bet on these stocks the most crowded trade currently, indicating a strong belief in their potential.

Optimism around artificial intelligence (AI) has been a driving force behind the growth of tech stocks like the Magnificent Seven over the past two years. This trend has also benefited other companies related to AI, such as Super Micro Computer and Micron Technology.

Investor Sentiment and Concerns

Despite their optimism, hedge fund managers have lingering concerns about inflation and the potential impacts of the upcoming U.S. presidential election. However, they remain bullish on the outlook for Federal Reserve interest-rate cuts, with many predicting multiple rate cuts over the next 12 months.

Recent inflation data has increased confidence that the Federal Reserve will cut interest rates at its upcoming meeting. While Fed officials are now anticipating only one rate cut by the end of the year, investors are more optimistic about the possibility of multiple cuts.

Most respondents in the survey do not foresee a recession in the next 12 months, with many expecting a “soft landing” instead. Inflation remains a top concern for investors, followed by geopolitical tensions and potential impacts of the presidential election in November.

Overall, hedge fund managers continue to show strong confidence in the Magnificent Seven tech stocks, driven by optimism around AI and expectations for interest-rate cuts. While concerns about inflation and geopolitical factors persist, investors remain hopeful for a positive outcome in the market.

For more information, you can read the original article on Investopedia.