Despite Inflation, US Tech Stocks Soar... Retail Investors Flock to AMD and Nvidia

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Despite inflation, individual investors in the United States are still holding growth and technology stocks. This challenges the traditional Wall Street belief that technology stocks tend to fall when signs of rising prices appear.

The Wall Street Journal (WSJ) reported on the 25th (local time) that "individual investors are flocking to growth stocks," citing AMD and Nvidia as representative examples.

Typically, inflation is "bad news" for growth stocks, but many individual investors seem unfazed.

According to Vanda Research, the three most purchased stocks by individual investors in November were semiconductor companies AMD and Nvidia, along with Apple.

These growth stocks are usually popular in a low-interest-rate environment. Since there are few alternatives offering high returns, investors tend to flock to valuable technology stocks with high future growth potential, even if they are somewhat expensive.

This also explains why technology stocks surged after the "zero interest rate" era began following the COVID-19 pandemic in March last year.

However, when the U.S. Consumer Price Index (CPI) for October rose sharply by 6.2% year-over-year?the largest increase in 30 years?interest rate hikes were expected to come sooner than initially anticipated, starting next year.

As a result, there were forecasts that the rise of technology and growth stocks would slow down. Rising interest rates discount the future earnings of relatively overvalued tech companies. Additionally, borrowing costs for "big tech" companies that have already made large-scale investments would increase.

Nevertheless, retail investors still appear to be fixated on growth stocks.

In fact, over the past month, AMD and Nvidia surged more than 28% each, and Apple rose 8.1%. This increase outpaced the 2.1% rise of the S&P 500 during the same period.

Since early this year, many retail investors who drove up the prices of meme stocks such as GameStop, AMC Entertainment, and Hertz have relied on a "momentum investing" strategy, chasing stocks they believe will continue to rise, WSJ pointed out.

There are expectations that this technology stock rally will continue for the time being. According to a Bank of America survey conducted earlier this month, 61% of fund managers believe inflation is temporary. This implies that as inflation is expected to eventually subside, investors have less reason to avoid technology stocks.

Viraj Patel, head of global macro strategy at Vanda Research, told WSJ, "The lesson we've learned over the past 12 to 18 months is that IPOs, fiscal stimulus, and other micro events have had a greater impact on individual investor behavior than inflation."

On the other hand, unlike retail investors, institutional investors are selling technology stocks and shifting to value stocks.

According to EPFR, which mainly tracks institutional investment flows, investors withdrew more than $2 billion from U.S. technology-focused mutual funds or exchange-traded funds (ETFs) between November 4 and 17. This is the largest outflow in a two-week period since January 2019.

Instead, institutional investors are investing in undervalued value stocks such as consumer goods, healthcare, and utilities, WSJ reported. This approach is a defensive investment strategy suitable for times of high uncertainty.

This content was produced with the assistance of AI translation services.