MW Big tech is preventing new stock-market highs due to the changing way investors play the AI trade, says this top strategist
By Barbara Kollmeyer
Investors are starting to look for rebounds among software and miners, says Nomura strategist
The changing nature of the AI trade will make it difficult for the stock market to reach new highs.
After another brutal selloff, the stock market is poised to advance in something of a Knicks-esque comeback.
Investors are finally waking up to the "instability of the narrow/concentrated market's AI leadership," Nomura's closely followed cross-asset strategist, Charlie McElligott, told clients in a note on Thursday.
McElligott maintains that all-important Big Tech has turned into a major headwind for markets, just as the artificial-intelligence trade is starting to undergo a shift.
The biggest issue for U.S. stocks is that "we almost certainly CANNOT resume making new highs without the Mag7 Hyperscalers doing the heavy lifting, as they're simply 'too big' and matter too much," the strategist said, using all-capital letters for emphasis.
Those heavyweights have morphed into a headwind for two reasons, he explained. The first is that hedge funds and other asset managers have been shifting out of the top tech and semiconductors players to buy makers of potential AI supply-chain bottlenecks: memory-chip producers, silicon chip packaging and designers, network makers, robotics and others.
And some don't see the chip trade rebounding soon. He noted one Nomura client has placed a sizable bet that the VanEck Semiconductor ETF SMH will drop to $530 per share by July - it closed Wednesday at $586 per share.
The other reason for the headwind is that the tech sector has been throwing massive supply at the stock market to pay for its AI plans. That marks the reversal of a 15-year period when company buybacks and mergers-and-acquisitions activity whittled down the actual number of shares out there to invest, giving stocks fuel to keep rising, said McElligott.
Investors have seen a number of companies roll out plans to fund their AI ambitions, such as Alphabet's $(GOOGL)$ plans for a $80 billion equity offering and speculation that Meta $(META)$ could do the same, he noted. Super Micro $(SMCI)$ and Oracle $(ORCL)$ have also announced plans to raise cash through share offerings.
And that's as some big IPOs are coming, such as SpaceX's $(SPCX)$ $75 billion debut for Friday.
McElligott also provided this chart showing how Big Tech is set to burn through a ton of its cash that in the past might have been used for buybacks by the end of this year:
Also potentially at work is the increased use of leveraged exchange-traded funds. They propelled stocks on the way up, but now will work in the opposite direction on the way down.
While all of the above looks heavy for the stock market, McElligott offered a little encouragement as well.
He pointed to where investors have been quietly placing bets: the Roundhill Memory ETF DRAM, the iShares iBoxx $ High Yield Corporate Bond ETF HYG, battered software via iShares Expanded Tech-Software Sector ETF IGV and beaten down miners via VanEck Gold Miners ETF GDX.
Read: Micron, Intel drag the tech sector into a new bearish phase. Will the correction last this time?
The markets
U.S. stock futures (ES00) (NQ00) (YM00) are pointing to a bounce after Wednesday's sharp selloff, while oil prices (CL.1) (BRN00) are modestly higher.
Key asset performance Last 5d 1m YTD 1y S&P 500 7266.99 -3.80% -2.38% 6.16% 20.67% Nasdaq Composite 25,169.50 -6.27% -4.67% 8.29% 28.31% 10-year Treasury 4.535 5.40 4.60 36.30 16.70 Gold 4099.4 -8.95% -11.94% -5.37% 20.34% Oil 89.44 -3.73% -12.33% 55.79% 29.89% Data: MarketWatch. Treasury yields change expressed in basis points
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-Barbara Kollmeyer
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June 11, 2026 07:08 ET (11:08 GMT)
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