Deutsche Bank upgrades U.S. tech after selloff deepens

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Deutsche Bank upgrades U.S. tech

Highlights

Deutsche Bank upgraded U.S. tech and mega-cap growth stocks after a $2 trillion Nasdaq 100 drawdown and over 16 percentage points underperformance versus the S&P 500 in three weeks.
The brokerage noted tech's relative performance is now at the bottom of its long-term trading range, historically signaling an attractive entry point for investors.
Previous tech sector rotations yielded average gains of 32% and roughly 30 percentage points of outperformance, with current light equity positioning suggesting room for increased exposure if profit growth persists.

Valuation reset drives rating reversal

As reported by Reuters, Deutsche Bank reversed a downgrade it made three weeks ago and said Friday that the selloff in technology and mega-cap growth stocks has gone too far.

More than $2 trillion was erased from the Nasdaq 100's market value last month as investors reassessed AI-related investment plans and broader growth expectations. In its note, the brokerage said tech and mega-cap growth shares have underperformed the rest of the S&P 500 by more than 16 percentage points over the past three weeks, dropping about 11% while the broader index gained nearly 6%.

Deutsche Bank said that relative performance has now fallen to the bottom of technology's long-term trading range, a level it described as an attractive entry point in recent years. It also said results from the "Magnificent Seven" reinforced concerns about how quickly heavy AI spending will translate into returns, adding to recent weakness in large-cap technology names.

Room seen for renewed investor exposure

The brokerage said previous rotations back into technology have produced average gains of about 32% and around 30 percentage points of outperformance versus the rest of the S&P 500.

It also said overall equity positioning remains relatively light despite solid earnings growth, leaving scope for investors to raise exposure if corporate profits remain resilient. That view suggests the bank sees the recent pullback less as a structural break in the sector and more as a repricing that could open the way for a rebound.

In our earlier article on the Nasdaq 100 (NDX), we examined a sharp selloff that left the index under short- and medium-term moving averages, with forecasts pointing to range-bound trading and elevated downside risk unless key resistance was reclaimed. We also highlighted the launch of Janus Henderson and Centrifuge’s JQQQ blockchain-native fund as a potentially supportive long-term access channel, even as near-term sentiment stayed fragile amid concentration risks and skepticism about AI-linked capex translating into returns.

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