The Risk and Concentration of Big Cap Tech Stocks: Wells Fargo Analysts Warn About Acute Liquidity Demands and Potential Pullback

Risk of Concentration in Big Cap Tech Stocks


The risk of too great a concentration in big cap tech stocks is once again in focus. Wells Fargo’s Chris Harvey and many other experts have been warning about increased concentration risks among mega-cap tech stocks for some time. The recent Russell reconstitution provided an opportunity for investors to move large blocks of stock, particularly in the tech sector. However, there are concerns about the sustainability of this concentration in the long term.

Reasons for Concern

There are several reasons why there is a renewed focus on tech megacaps:

  1. Seasonally lower volumes in the months ahead
  2. Sky-high prices and valuations for megacap tech stocks
  3. A renewed concern about increasing interest rates as central banks try to rein in inflation

Potential Pullback

Many experts believe that a 5%-10% pullback is overdue, especially for big cap tech stocks. Last week, several big tech names, particularly in the semiconductor industry, experienced significant declines:

  • Intel: -9.2%
  • AMD: -8.4%
  • STMicro: -7.0%
  • Skyworks: -6.6%
  • Broadcom: -5.3%

Explaining the Size of Tech Companies

To understand the magnitude of tech companies, it’s helpful to compare their market capitalizations with the GDP of countries. Here are some examples provided by Wells Fargo:

Tech Company Market Cap Comparable Country GDP
Apple $2.9 trillion France ($2.9 trillion)
Microsoft $2.5 trillion Italy ($2.2 trillion)
Alphabet $1.7 trillion Mexico ($1.6 trillion)
Tesla $839 billion Taiwan ($791 billion)

Long-Term Sustainability

Currently, there are eight companies with market caps that would place them in the top 25 of national GDPs. This is a significant increase compared to ten years ago when there were none and even further back to 1999 when there were ten such companies. Experts question whether the current trend of tech companies surpassing the GDP of countries is sustainable in the long term.

Different Views

Despite the concerns, there are still bullish views on the tech sector. For example, Dan Ives at Wedbush believes that AI is having a similar impact on tech as the internet did in the 1990s. He predicts that the tech sector will continue to rally, with a potential 12%-15% increase in the second half of this year led by software and the chip sector, and with big tech companies remaining at the forefront.

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