Why Big Money Is Circling Back to America's Favorite Tech Stocks?

As investor sentiment wavers between caution and confidence, a handful of powerful tech names are making their way back to the top of institutional portfolios. The drivers behind this trend reveal more than just optimism — they hint at deeper structural forces at play.

According to John Flood, Head of Goldman Sachs Americas Equities Sales Trading, the “Mag 7” stocks — Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla — are positioned to benefit from three converging trends: strong earnings momentum, a supportive buyback environment, and a resurgence in AI-driven growth.

But is this a "dead cat bounce" or the start of something much bigger? The data suggest the latter — and hedge funds are already betting big.

Earnings Power: The Best Surprise Since 2023

Despite market-wide macro jitters, the Mag 7 have just posted their strongest positive EPS surprise since Q3 2023. This underscores the resilience of their product ecosystems and the effectiveness of their AI monetization strategies.

This signals renewed investor confidence in Big Tech as the ultimate “defensive growth” play amid geopolitical uncertainty and rising inflation concerns.

Buybacks Meet Valuation Reset: The Catch-Up Trade

The seasonal buyback peak in July couldn’t come at a better time. Following recent pullbacks, the Mag 7's P/E premium relative to the S&P 493 has dropped back to 2018 levels. This valuation compression creates a compelling entry point.

"We are entering peak buyback season with compressed multiples — a recipe for a catch-up trade," Flood writes.

With more than $100 billion in authorized repurchases queued up for the next two quarters, investors could see strong technical support just beneath current prices.

AI Tailwinds Are Re-accelerating

The first quarter of 2025 saw a key structural shift: a clear re-acceleration in public cloud growth, driven by renewed enterprise AI adoption. Microsoft’s Azure and Amazon’s AWS are leading the pack, confirming that AI infrastructure spend is back in expansion mode.

"AI tailwinds are starting to reemerge," according to Goldman’s tech desk.

This marks the second wave of AI-driven growth — less hype, more revenue.

By the way, Continued economic growth and a Fed on hold should keep yields elevated, sustaining investor preference for companies with STRONG balance sheets that are insulated from the pressure of higher interest rates. META, NFLX, TSLA, GOOGL, NVDA, & MSFT are all member of Goldman’s strong balance sheet basket (GSTHSBAL INDEX).

Hedge Funds Are Quietly Loading Up

Goldman Sachs Prime Brokerage data shows U.S. equities were net bought for the fourth straight week, with tech stocks leading the charge. Notional long buying in U.S. single stocks hit its highest level since November, signaling rising investor risk appetite.

In particular:

Tech long buys outpaced shorts 1.6:1.

The notional long buying in U.S. tech stocks was the largest in over a decade (+1.6 z-score).

Hedge fund exposure to the Mag 7 remains at 5-year lows — despite the recent surge in buying.

This means there is still significant headroom for further allocation.

Subsector Focus: Semiconductors and Hardware

Nearly all subsectors within U.S. Information Technology were net bought last week:

Semiconductors & Equipment saw the strongest inflows, fueled by AI-driven demand for compute power.

Tech Hardware & Peripherals followed, supported by solid earnings guidance.

Software saw modest net selling, driven by shorts outweighing longs.

Even with this rotation, tech exposure metrics remain below historical averages:

Gross exposure: 17.9% (46th percentile 1Y, 34th percentile 5Y)

Net exposure: 16.6% (33rd percentile 1Y, 13th percentile 5Y)

This suggests that institutional investors are still underweight — offering more runway for reallocation.

Global Confirmation: It’s Not Just a U.S. Story

Globally, Information Technology was the most net-bought sector last week. Net inflows hit a four-month high, with long buys outpacing shorts 2:1. The nominal long buying reached a five-year high.

This confirms that the tech enthusiasm is not isolated — it’s a globally coordinated shift.

Investment Takeaway: Watch the Next 90 Days

We are entering a critical window where AI monetization, seasonal buybacks, and fresh capital flows converge. If these forces continue to align, the Mag 7 could significantly outperform broader markets over the summer.

For now, the setup looks increasingly asymmetric: limited downside risk, and potential for a high-velocity upside move.

Stay tuned. This might just be the trade of the season.