Dip buyers emerge for tech stocks as traders look past midterms, focus on fundamentals

As the US midterms have concluded, traders and analysts have turned their attention to the underlying fundamentals of the technology sector. The election has resulted in Democrats taking control of Congress and the Senate, a change that may not significantly alter AI policy in the near future. Emmanuel Cau, Barclays' head of European and Apac equity strategy, believes that fears of nationwide data centre bans are unlikely due to President Trump's support for AI.

Following a 2.4% drop, Nasdaq 100 futures have recovered most of their losses, indicating that there are investors looking to buy on dips. Although the midterms were just one concern for the tech sector, other issues such as overinvestment in AI and potential regulation still persist. However, with most positioning in the sector now at lower levels, there is a positive asymmetry in returns.

Deutsche Bank strategists upgraded tech stocks after the sector retraced to the bottom of a decade-long relative trend channel. They noted that positioning has fallen sharply, aligning with a growth deceleration of around 10%, down from 47% in the third quarter. Some analysts, including those at Bank of America, remain cautious but optimistic about the AI build-out, from chipmakers to manufacturers of chipmaking and networking gear.

Despite some relief, investors are still concerned about AI risks and the potential impact on neocloud companies and frontier AI labs. Financing remains a key topic, as Oracle issued new bonds and Meta Platforms sought to issue new debt. The success of these financing efforts will be crucial in determining whether AI labs can grow fast enough to validate the spending and borrowing.