The tech sector is in the process of right-sizing, and one strategist doesn’t expect that to let up any time soon.
“I think what we’re experiencing is that we took five steps forward in [the tech] industry, and now we’re going to take two steps back,” Peter Tchir, head of macro strategy at Academy Securities, told Yahoo Finance Live (video above). “Everyone needed web space, everyone needed a big data plan, and everyone needed AI. People are thinking about those costs now as a concern. There was so much free money floating around for private equity companies that they could just invest in whatever they wanted. That’s all stopped.”
One area of tech that has continued to see a lot of movement has been in AI stocks, as the rise of ChatGPT and the so-called AI wars between Alphabet (GOOG, GOOGL) and Microsoft (MSFT) makes headlines.
However, Tchir was skeptical about how far the hype surrounding AI has gone.
“I think we’ve got to see where this plays out,” Tchir said. “It doesn’t feel like the barriers to entry are that high. Clearly, we saw the other day— I think it was Google — their AI disappointed, and all of a sudden, their stock got hit very hard. So, too much is being built into AI right now.”
And it’s not just the tech sector that could fall under substantial pressure in 2023, Tchir noted. The broader market may start to feel a recessionary vibe in the economy.
“I think at some point, we are going to break last year’s lows on the S&P and Nasdaq,” he said, adding that for the Nasdaq, in particular, “we are going to go through that because everyone kind of got bullish again, and we’re going to realize, oops, this is not as good.”
“Consumers aren’t spending as much as people thought,” he emphasized. “Companies are still overburdened. We’re going to see that pressure point.”
So, from an investing perspective, are there any areas of the market that look good right now?
“I like things like cable, telecom, things that people are going to need every single day,” Tchir said. “I think some of the excesses — some of the more ‘story stocks’ — they still have more room to fall.”