The stock market's biggest winners are getting downgraded by Wall Street

The stock market's biggest winners are getting downgraded by Wall Street - Yahoo Finance

June 26, 2023

Tech stocks have rebounded so well from their down year in 2022 that there might not a buying opportunity there anymore.

At least that's what some Wall Street analysts are saying as they slap downgrades on some of 2023's best performers like Tesla (TSLA), Apple (AAPL)and Alphabet (GOOGL).

"It's difficult to model upside to our current high-single-digit [websites] growth estimates," UBS analyst Lloyd Walmsley said in a note on Monday that downgraded Alphabet shares from Buy to Neutral.

Walmsley joins a growing list of big tech analysts to caution about future upside in the 2023 rally. Two weeks ago, his colleague at UBS David Vogt downgraded Apple from Buy to Neutral, noting that "growth is likely to remain under pressure." In the past week alone, three analysts have now downgraded Tesla in less than two weeks.

Importantly, the downgrades aren't saying that things look overly gloomy for some of the tech stalwarts. In fact, in some cases, analysts are still expecting the stocks to go up.

The downgrades indicate the market is finally correctly pricing in the potential for future earnings, and therefore, the stocks might be priced just fine where they stand today.

"We believe the stock now better reflects our positive long-term view of the company’s growth potential and competitive positioning post the substantial move higher YTD," Goldman Sachs analyst Mark Delaney wrote in a note in Monday.

Delaney downgraded Tesla from Buy to Neutral while boosting his price target from $185 to $248. Last week, Morgan Stanley analyst Adam Jonas made a similar move downgrading Tesla from Overweight to Equal Weight, while lifting his price target from $200 to $250.

"I have to be up-front with you all," Jonas wrote. "While the team has defended the Tesla OW rating all year, I did not see this 111% YTD rally coming (the S&P 500 is up 14% YTD, for context). We think it's understandable and are sympathetic to the changes in the market narrative around the name. We're not trying to call 'the end' to the Tesla rally and from our discussions continue to find a significant degree of investor skepticism/lack of exposure around the name."

One risk for Tesla: Wall Street continues to debate whether the electric-vehicle maker is an artificial intelligence play.

So, Jonas argues, if the AI momentum fades, the stock price may follow suit.

"While the market may want to dream on the AI theme, we'd prepare to wake up to the sound of a blaring car horn," Jonas wrote.

Broadly, macro strategists are sounding a similar warning call, too. Despite a slew of upgrades to the S&P 500 over the last few weeks, not many strategists see upside above 4,500 for the S&P 500. That reflects just over 3% upside for the benchmark index for the rest of the year.

One of those strategists, Truist Co-Chief Investment Officer Keith Lerner, jacked up his S&P 500 year-end "range" to 3,800-4,500 from a range of 3,400-4,300 earlier in June.

"The technology sector is trading at rich valuations, and concentration at the top is a risk," Lerner wrote in a note to clients on Wednesday. "But this is not 2000, not even close, based on valuations and returns. Although tech is extended on a short-term basis and we would be more inclined to add on pullbacks as opposed to aggressively chasing at current levels, we still see the sector as longer-term leadership."