Investing.com - Growth and technology sector stocks are unlikely to dominate equity returns in 2025 as the risk remains of an unwinding in recently high levels of market concentration, according to analysts at JPMorgan Chase (NYSE:JPM).
"Growth" names, or stocks that are anticipated to expand at a rate significantly faster than the market average, have had a major spell of outperformance since a sell-off in 2022, the analysts led by Mislav Matejka said in a note to clients on Monday.
A boom in enthusiasm around the capabilities of artificial intelligence has particularly fueled a concentration of investment in the so-called "Magnificent 7" tech groups like AI-darling Nvidia (NASDAQ:NVDA) and software giant Microsoft (NASDAQ:MSFT). These mega-cap stocks, many of whom are racing to be at the forefront of the race to monetize AI, are generally considered to be in the "growth" category.
Matejka argued that while earnings at these companies "are still likely to hold up," growth stocks are vulnerable to any dampening in the concentration in Magnificent 7 firms -- such as a steep drop sparked by the emergence of an open-source AI model from China's DeepSeek earlier this month.
Still, beyond extreme price relatives and elevated retail investor positioning, Matejka said the analysts "do not see similarities" to the 2000 dot-com bubble, which coincided with a similar concentration in certain tech stocks linked to the rise of the Internet.
"Then, tech leaders were heavily leveraged, with no buybacks and cashflow to support them, while now their balance sheets are cash heavy," Matejka wrote.
The JPMorgan analysts recently lowered their outlook for the "growth versus value style," which assess growth stocks against others than are underrated but could gain in value, to "neutral" from "overweight."
Elsewhere, for their top picks among European corporates, the JPMorgan analysts included energy firms Equinor (OL:EQNR), Shell (LON:SHEL) and Saipem (BIT:SPMI), materials players Akzo Nobel (AS:AKZO) and Heidelberg (ETR:HDDG) Materials (ETR:HEIG), as well as industrials company Compagnie de Saint Gobain (EPA:SGOB).