U.S. technology stocks are once again under scrutiny. The stocks have surged significantly thanks to the artificial intelligence (AI) craze, but only a few corporations are expected to deliver real results, leading to a thorough evaluation of stocks in the future.
The most widely held overseas stocks by domestic investors as of Aug. 27 are Tesla, Nvidia, Palantir, Apple, Microsoft, and the Invesco QQQ Trust, which tracks U.S. technology stocks. The total value of these top six stocks is $54 billion, approximately 75 trillion won.
For individual investors, concerns are only growing. The nature of technology stocks makes it difficult to accurately assess market conditions and individual outlooks. This is why it is essential to meticulously check expert analyses when investing in technology stocks. In particular, there are suggestions that the process of selecting winning corporations, referred to as the next generation 'M7 (Magnificent 7),' is crucial.
Seo Yong-tae, Director General of Korea Investment Management's Global Strategy Division, noted in an interview with ChosunBiz on the 28th of last month that "there is clearly a bubble in technology stocks," but added, "Nevertheless, the driving force that will lead the global stock market in the future will ultimately be U.S. technology stocks."
Seo added that "the task of identifying good technology stocks is just in its early stages." He referenced past cases in which winning corporations dominated the market by acquiring other companies during the growth of high-tech and network innovations and explained that "the winners in the Nasdaq index were ultimately just seven companies."
He emphasized that "the bubble phenomenon is an inevitable trial and error process that technology stocks experience," and that "it is essential to find winners that can create added value by outsourcing investments to experts or by integrating the market."
◇ AI bubble mentions, but companies generating actual revenue exist
Recently regarding the AI bubble, Seo observed that the growth momentum of U.S. technology stocks remains solid. He pointed out that, as can be seen from the recent performance announcements of big tech corporations, it is important that the rise in stock prices is based on earnings per share (EPS) growth rather than mere valuation.
He stated that "the expansion of investments centered on AI is leading to revenue increases for actual infrastructure corporations such as semiconductors, data centers, and cloud services," and added that "global IT expenditure is expected to grow by more than 10% on average annually, which means the benefits for the value chain corporations will continue as investments centered on AI expand."
Support from the Trump administration is also a factor to consider. The U.S. government is encouraging technology corporations to expand research and development (R&D) and capital expenditures (CAPEX) through tax cut policies and the OBBBA bill (Donald Trump's massive tax cut plan). Seo explained that "investments in key infrastructure such as AI, semiconductors, and data centers are being supported from a national competitiveness perspective, providing a stable growth foundation."
◇ Specialized and advanced cybersecurity: an irreplaceable area
He highlighted cybersecurity as a sector to watch. He mentioned a case from last July when a software update error from the U.S. cybersecurity corporation CrowdStrike caused shutdowns in airport and airline systems and service disruptions in financial firms. The incident became an issue globally.
Seo noted that "the complexity of technology makes it realistically difficult for corporations to build systems internally and hire personnel, which also incurs high costs," adding that "they have no choice but to outsource to specialized corporations, resulting in significantly enhanced expertise per corporation due to the specialization and segmentation of services. As technology advances, irreversible areas emerge and alternatives become difficult to find," he added, emphasizing that "the field of cybersecurity will continue to be noteworthy."
◇ U.S. technology stocks remain dominant, favorable external environment for the second half
Regarding China's steep technological growth, which investors have focused on due to 'DeepSeek' and 'humanoid robots' earlier this year, Seo expressed skepticism. He remarked, "The dominance of U.S. technology stocks is not likely to be easily shifted," asserting that "China has structural limitations such as state-led technological control and privacy issues, which restrict its growth." He added that there are many unlisted corporations in China, making investment practically challenging.
Considering all these circumstances, Seo evaluated that "it will not be easy for the technological alliance of the U.S., which has secured more favorable forces in Asia and Europe, to lose its edge to China."
The external environment for the second half is also expected to work favorably for U.S. technology stocks. In a phase of interest rate cuts, the 'discount rate' that applies when calculating the present value of future corporate profits decreases, leading to a higher valuation of technology stocks. Lower borrowing costs may also improve the corporate management environment. However, Seo cautioned that "these factors are merely supplementary effects."