Technology stocks have been on a tremendous tear this year, resulting in several acronyms representing the cream of the crop. FANG, FAANG and FAAMG have all been skyrocketing this year, as Facebook, Amazon, Apple, Netflix, Google/Alphabet and Microsoft have grabbed the spotlight. The fates of these Tech names seem to be intertwined and have led some to talk about whether there’s a bubble and if so, when it’s going to pop. Because of how high the Technology sector has gone so fast, analysts at one firm state that it’s their preferred growth theme.

Given how hedge funds have crowded the sector recently, it’s clear that Credit Suisse isn’t the only firm that favors it.

Earnings momentum sends stocks sky high

Credit Suisse analyst Eugene Klerk and team said in their “Global Equity Themes” report dated June 23 that earnings momentum has been the best-performing style so far this year in all of the world’s regions but especially in the U.S. and continental Europe.

They have also found that tech-related earnings momentum has been driving overall revisions for earnings estimates, although the Industrials sector has also stood out. Together, the two sectors contribute one-third of this year’s expected earnings per share growth, excluding financials.

However, they add that more recent data indicates that the earnings momentum among Technology names could be shifting, as the momentum has begun to roll over through supply chains. The Credit Suisse team noted that this rollover came at the same time as investors started to take profits throughout the Tech space earlier this month.

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Technology as the preferred growth theme

The analysts explained that in choosing their preferred growth theme, they used quality and momentum as parameters. They found they found that Technology has been the highest-ranked growth theme in both of these two parameters.

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The question now is whether Technology can continue to be their top growth theme because investors and analysts alike are starting to question whether the sector's rally is sustainable. And the higher Wall Street's darling Tech names have climbed, the greater the concerns about the rally's sustainability have become.

As a result, Klerk and team have updated their growth theme ranking by factoring in the impact of the pullback in Technology earlier this month. They also drilled down deeper to look at the changes in some of the favorite Tech stocks.

Technology themes still have the highest ranking

In their view, the top three themes are the same, although they're in a different order after their adjustments. They feel that Technology-related themes still dominate, with three of them still holding the top three positions in their growth framework.

growth theme preferred growth theme

The Credit Suisse team notes that momentum has impacted every Technology themes except for one: Potential of the Internet. They also feel that the quality characteristics of major Tech companies are still quite high. Thus, they serve to keep Technology as the best growth theme, at least for now.

The analysts add that valuation remains "challenging" for almost all of the themes and not only for those exposed to Technology.

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The most attractive stocks based on the Technology growth theme

They also offered up a list of the stocks that are most exposed to the top three Technology growth themes. They feel that Facebook, Alibaba and Zalando have improving quality and momentum. Other attractive names based on the Potential of Internet theme include Apple, Tencent and Vipshop.

They feel that within Big Data, Microchip and Xilinx have an "improving mix of quality & momentum," while Adobe Systems and Oracle have a weakening mix. In the Content is King theme, they feel that New Oriental and Discovery have an improving mix of quality and momentum, while Walt Disney and Zee Entertainment have a weakening mix.