Tech stocks upgraded by Trivariate Research: 'Outperformance increasingly likely'
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Technology stocks could soon lead the way again given the underlying strength in earnings, according to Trivariate Research. Adam Parker, the firm's founder, upgraded tech to outperform from market perform, saying the mismatch between stock price performance and earnings growth from the group suggests it could break through the gloom it's been in all year. "We are warming to the idea that the power of this 24-month forward earnings growth is going to be too high for Technology to underperform," Parker wrote on Sunday. Parker was more neutral on tech as it's lagged other parts of the market. The S & P 500 tech sector is up 4.2% in 2026. That makes it the eighth-top performer year to date. Energy, materials and industrials are leading the way this year, up double digits. But an "extremely strong" earnings picture suggests the group is deserving of another look, according to Parker. He noted that Micron and Nvidia alone are behind 44.9% of the year-over-year growth of the entire S & P 500 in the first quarter. And, the entire sector is expected to post earnings growth of 43.1% in 2026. XLK YTD mountain Tech to lead once more? If that fundamental picture holds, it's unlikely that stock prices won't catch up, Parker said. "While the bottom-up consensus EPS expectations for the Technology sector are for 43.1% growth in 2026, if we assume the Technology sector performance overall is flat this year, but earnings growth is less than that at "only" 35%, the price-to-forward earnings would end the year at 16.35x (see below), a level not seen since December 2018 at the end of a large growth scare. This seems unlikely to us, given EPS expectations today are for an additional 25% EPS growth in 2027," he said. "Hence, even with multiple contraction, and assuming a 35+% growth rate this year and another 15%+ growth next year makes Technology sector outperformance increasingly likely," Parker added. To be sure, Parker remains bearish on software stocks, given that the obsolescence risk in the group suggest fewer winners will emerge. But he also remains mindful that there remain material shortages in memory, and said he expects Nvidia will continue to grow better than the overall market rate. "There's just too much earnings power to get too negative," he said Monday on CNBC's " Squawk on the Street ."