In a recent post on X, Billionaire investor Bill Gross urged investors to avoid tech stocks. His recommendation came after the Bureau of Economics announced a weaker-than-expected U.S. GDP growth in Q1 2024 at an annual rate of 1.6%.
As consumer prices remained elevated, Wall Street began pricing in reduced chances of interest rate cuts this year.
Gross, co-founder of Pacific Investment Management Company, is known for creating the first investable market for fixed-income securities for all.
In his post, he said: "Stick to value stocks, avoid tech for now", while bond yields jumped on the Q1 data released by the Bureau of Economic Analysts on April 25. If investors had to invest in tech, Gross recommends Microsoft as the best in the sector.
Microsoft posted a 17% year-over-year (YoY) revenue growth to $61.9 billion for the March-ended quarter. Its operating income increased 23% YoY to $27.6 billion because of its AI-powered products, Office 365 units, Azure and cloud services.
"Microsoft and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry," said CEO Satya Nadella in an earnings call.
Gross, however, remained calm about the AI frenzy taking over Wall Street, stating earlier that the AI craze shows signs of "excessive exuberance."
A recent report from Capital Economics described the stock market as an AI-driven bubble that will burst in 2026, leading to price corrections of currently overvalued tech stocks. Analysts at the research firm drew parallels with the Great Depression of 1929.
"We suspect that the bubble will ultimately burst beyond the end of next year, causing a correction in valuations. After all, this dynamic played out around both the late 1990s and early 2000s dot-com bubble and the Great Crash of 1929," the analysts said.
Meta's stocks tanked 10% on April 25 on weaker 2024 guidance. The firm projected higher spending on its AI roadmap, infrastructure development, and legal costs around dynamic regulatory headwinds in the EU and the US.
Although Tesla's stocks jumped 13% after the latest earnings announcement on Elon Musk's plans for cheaper EVs by 2025, it posted a 9% YoY drop in Q1 revenue, the steepest decline since 2012.
Meanwhile, the 10-year Treasury yield jumped to 4.7%. Gross said, "Why own bonds? T-bills yield 5.25%." T-bills have the shortest maturity periods, ranging from weeks to a year.
The "Bond King" shared that he owns shares in Western Midstream Partners, which earned him 9.9% in tax-deferred annual dividends. He also owns MPLX, with an annual dividend yield of 8.4%. Gross cautioned investors against going overweight on MLP pipelines despite notable momentum.
However, J.P. Morgan CEO Jamie Dimon was bullish on the era of AI. In a recent interview, he opined that AI can "be used in almost every job...It may invent cancer cures because it can do things the human mind simply cannot do."
Unlike the dot-com crash, fueled by hype but not much substance, Dimon stressed that AI is already transforming many businesses across different sectors. He concluded that while the AI adoption rate across industries will vary, the excitement isn't getting ahead of the results this time.
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