The recent market trends have highlighted a shift in investor sentiment, with a rotation from big cap tech stocks to smaller cap stocks. This movement is driven by hopes of an improving interest rate and inflation outlook. However, amidst this shifting landscape, Bank of America’s Savita Subramanian has pointed out a corner of the market that she believes is being neglected – “old school capex” stocks.
Subramanian acknowledges that while stocks still have the potential to go higher, investors need to be cautious in their approach. She warns of a potentially more volatile market for tech stocks in the near term. This caution is based on the uncertainty surrounding the performance of big cap tech companies going forward. If these companies fail to hold up, gains in the overall benchmark may not be as strong.
Embracing “Old School Capex”
Contrary to the current trend, Subramanian favors investing in “old school capex” stocks that have yet to factor in gains from artificial intelligence and the nearshoring trend. These companies, primarily in the industrials, materials, and energy sectors, are poised to benefit from the impending infrastructure spending cycle needed to support AI chips.
Subramanian believes that there is untapped potential in these sectors, as the growth prospects are not yet fully priced in. She emphasizes the importance of recognizing the strength in traditional industries that are essential for supporting technological advancements. By investing in these “old school capex” plays, investors could potentially see stronger gains and capitalize on the upcoming infrastructure spending boom.
While the current market dynamics may be favoring a shift towards smaller cap stocks, investors should not overlook the opportunities presented by “old school capex” stocks. These sectors have the potential to deliver significant returns, especially in the context of evolving technological trends and infrastructure investments. By diversifying their portfolios and strategically positioning themselves in these overlooked sectors, investors could unlock substantial upside potential in the market.