Can Small-Cap Tech Stocks Outperform Megacaps This Year?

Many analysts believe that smaller and riskier technology stocks can outperform megacap technology stocks this year.  In 2023, investors poured money into the top seven megacap technology stocks, or the “Magnificent Seven,” which includes Apple, Alphabet, Amazon.com, Meta Platforms, Microsoft, Nvidia, and Tesla.  However, the smaller technology stocks are seen as more attractive this year with easing bond yields and lower valuations.

Bloomberg’s Magnificent 7 Price Return Index more than doubled last year, contributing to a +54% gain for the Nasdaq 100 Stock Index ($IUXX) (QQQ).  Main Street Research said, “If you didn’t own the top seven stocks last year, you weren’t able to participate in most of the returns.”  However, there are signs that this trade is reversing.  Both small and mid-cap technology sector stocks have kept pace with the megacaps since the end of October.  Also, Bloomberg data shows the average price target by analysts is for a +14.4% gain this year for small-cap tech, while it’s less than +7% for the overall Nasdaq 100.