If you don't own the biggest S&P 500 tech stocks, like Nvidia, you're missing out on the year's monster rally. But ETFs let you still take part of tech's run without choosing the next absolute winners.
You might think every tech stock soared already this year — after all chipmaker Nvidia just hit a market value of $1 trillion. But plenty of tech stocks are still waiting their turn. More than 15% of the 85 stocks in the S&P 500's information technology and communication services sectors are actually down this year. And analysts think these stocks are overlooked gems — and are calling for all of them to rise by an average of 35% in the next 12 months, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Analysts bet the climate for S&P 500 tech and tech ETFs is brighter thanks to the Federal Reserve's decision to keep short-term interest rates where they are. That helps keep the economy strong enough to fuel investment in emerging areas like AI.
Artificial Intelligence News And AI Stocks To Watch
"We continue to strongly believe that with the Fed now coming to the end of its historical rate hike cycle, inflation rapidly cooling, and rate cuts in the foreseeable future the Street is seeing the forest through the trees to identify the tech winners and share gainers in this next fourth Industrial Revolution," said Dan Ives, analyst at Wedbush.
S&P 500 Tech Rally Outcasts
What kinds of S&P 500 tech stocks are getting left out of the rally? Former S&P 500 champion Enphase Energy is one. The company makes many of the semiconductor based devices needed for solar energy. Shares, though, are down by roughly a third this year — while the Nasdaq 100 is up roughly 35%.
Analysts, though, think Enphase's participation in the tech rally is only a matter of time. They're calling for the stock to gain 42% over the next 12 months. And there are profits to back that claim up. Analysts think Enphase's earnings per share will rise 20% this year and 34% next year. But rather than loading up with Enphase, investors can hedge their bets by owning tech ETFs with large exposures to the stock. Global X Solar ETF puts 9% of its portfolio into Enphase, says VettaFi. That's more than any other ETF.
Communication services stocks, too, are running hard this year in tandem with the tech rally. Meta Platforms, the second-most-valuable communication services stock, is up 124% this year. But inside the sector you can find S&P 500 stocks that aren't joining the rally yet, but analysts think they will. Take Dish Network, the satellite telecommunications firm. Shares lost more than half their value this year. But analysts still think there's a 188% rally brewing in the next 12 months. But rather than buying Dish and hoping for the best, it's a 3% weight in the Procure Space ETF, VettaFi says.
Know What You're Buying With Tech ETFs
Analysts aren't always right. And there are other considerations when choosing growth stocks, as the winners in tech usually grab most of the market. Sometimes lagging stocks are left out of a rally for a reason.
And that's why it's imperative to understand what you're buying with ETFs. "While most people think of Amazon.com, Alphabet and Meta Platforms as technology stocks, investors will not find them in many ETFs that have technology in the name," said Todd Rosenbluth of VettaFi. That includes the Vanguard Information Technology and Technology Select Sector SPDR ETFs.
For broader tech plays beyond the giants, Rosenbluth says it's hard to beat the Invesco QQQ Trust. And if you want to eliminate the overweight in tech giants, he likes Invesco S&P 500 Equal Weight Technology ETF. "It has less concentration in Apple, Microsoft and Nvidia and more exposure to Adobe and Advanced Micro Devices," he said.
S&P 500 Tech And Communications Leftovers
All are down this year, but analysts say they're not out
| Company | Ticker | YTD | Sector | Upside to analysts' 12-month target |
|---|---|---|---|---|
| DISH Network | -55.0% | Communication Services | 186.1% | |
| Enphase Energy | -32.4 | Information Technology | 41.7 | |
| Charter Communications | -1.2 | Communication Services | 38.1 | |
| T-Mobile US | -8.5 | Communication Services | 37.4 | |
| SolarEdge Technologies | -4.5 | Information Technology | 36.7 | |
| AT&T | -13.9 | Communication Services | 33.9 | |
| Gen Digital | -14.4 | Information Technology | 26.3 | |
| Teledyne Technologies | -0.4 | Information Technology | 24.5 | |
| Verizon Communications | -9.3 | Communication Services | 23.6 | |
| Paramount Global | -1.7 | Communication Services | 19.3 |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
