Australian investors are beginning to pull back from major US tech stocks as global markets strap themselves in for a period of potential volatility.
With a number of factors at play, such as the upcoming US election, tensions in the Middle East, and central bank interest rate decisions, investors have begun taking profits from investments in US tech stocks to park that cash elsewhere.
That means shares like Nvidia Corp (NASDAQ: NVDA), Microsoft Corporation (NASDAQ: MSFT), Meta Platforms Inc (NASDAQ: META) and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) have been sold down in recent weeks.
Let’s see what the experts think about whether now is the right time to take some profits from US tech stocks.
Why are investors selling US tech stocks?
According to asset management giant BlackRock‘s strategists, many Australian investors have started diversifying away from large-cap US tech stocks.
This is after nearly two years of strong gains, with the rally in US shares arguably beginning in October 2022.
Investors are instead looking to sectors that are potential beneficiaries of a US election, whereas some have turned more defensive. Speaking to The Australian Financial Review, BlackRock’s James Waterworth said:
Tech had been nearly the only trade in town, but more recently, we have seen a rotation trade as investors broaden out using [US equities] as a funding source because they have rallied so strongly.
Big tech stocks, especially those riding the artificial intelligence (AI) wave, have delivered substantial returns.
The Dow Jones US 100 Technology Index, which tracks the performance of the US tech sector, is up more than 54% in the past year.
In comparison, the S&P/ASX All Technology Index (ASX: XTX) is up 45% – still impressive, but also behind its US counterpart.
But BlackRock’s Asia-Pacific strategy team warns that investors should be prepared for some bumps in the road over the coming months. Per the AFR:
It’s really all about US election.Prepare for volatility now and then make a decision at the start of next year as to whether you want to be fully back in.
Based on some of the rhetoric that has come out, Trump will be seen to be better for US-focused sectors, particularly things like banks and energy and possibly some small caps.
But he is seen as worse for China and the big Asian exporters, because he has talked a lot about raising tariffs.
This may or may not have a direct impact on US tech stocks.
What about the long-term outlook for US tech stocks?
Betting against US tech has proven to be a fool’s game over the past decade or so, or maybe longer.
Despite the ‘dot-com bust’ in 2000, the Global Financial Crisis (GFC) in 2008, and the COVID-19 pandemic in 2020, the sector has delivered outsized returns in the past twenty years.
So, it’s not surprising that, despite the near-term uncertainties, many analysts believe the long-term growth story for US tech stocks remains strong.
This is especially true given the rapid expansion of AI and cloud computing.
Earlier this year, Nvidia CEO Jensen Huang predicted that “[US]$2 trillion worth of data centres” would sit behind global software in the next few years.
Mind you that US$2 trillion sits just below Nvidia’s current market capitalisation at the time of writing.
Meanwhile, strategists at US Bank Wealth Management say investors can be sure that US tech stocks will remain an important part of portfolios, according to Forbes.
Over the long term, technology stocks can be expected to remain highly visible in the broader market.
Fast is getting faster, and speed, scale and efficiencies across the board don’t happen without technology
To a large degree, technology is impacting all sectors of the economy in all walks of life.
This reinforces the importance of always keeping a long-term view in mind.
Foolish takeaway
With the US election approaching and market volatility potentially creeping in, it may be tempting to take some profits from big US tech stocks like Nvidia, Meta and Alphabet.
Reports are that some institutional investors are doing this. But it’s also important to consider the long-term impacts this may have, how this fits in with the broader strategy, plus any tax implications.
Remember – time in the market is better than timing the market.