Technology sector jumps 37% in Q2 as AI infrastructure fuels rally

The technology sector (XLK [https://seekingalpha.com/symbol/XLK]) jumped more than 37% in the second quarter, registering the strongest performance among all 11 sectors, driven by strong earnings from tech giants and continued artificial intelligence investments despite the selloff in the last couple of weeks.

TECHNOLOGY SECTOR SCORECARD

* Sector Return: +37.43% QTD
* Best Performer: SanDisk (+297.16%)
* Top Detractor: Intuit (-39.17%)
* Top Theme: AI Infrastructure

Seeking Alpha analyst Julian Lin [https://seekingalpha.com/author/julian-lin] highlighted that the market is clearly rotating from the spenders of capital expenditures, or CapEx, toward the sellers of CapEx, with hardware becoming the new software. One can argue whether that rotation is now overdone, but one must also be reminded that a rotation in the opposite direction is always possible.

TOP TECH PERFORMERS OF THE QUARTER

On the individual front, SanDisk (SNDK [https://seekingalpha.com/symbol/SNDK]) was the biggest winner in the second quarter, rising more than 297% on the back of stronger enterprise SSD demand, as the company has been a direct beneficiary of AI infrastructure growth.

It was followed by Micron Technology (MU [https://seekingalpha.com/symbol/MU]), which gained 257.60% in the second quarter following bullish analyst calls that cited continued strength in memory and storage demand.

Lin argued that MU and SNDK embody the "sellers of CapEx" trade. While MU delivered results that defied already incredible expectations, SNDK appears to have been lumped into a similar bottleneck story, with investors now expecting a similarly stunning beat.

HERE ARE THE TOP FIVE GAINERS OF THE QUARTER:

* SanDisk (SNDK [https://seekingalpha.com/symbol/SNDK]): +297.16% — Quant rating: Strong Buy with a score of 4.99 out of 5
* Micron Technology (MU [https://seekingalpha.com/symbol/MU]): +257.60% — Quant rating: Strong Buy with a score of 4.99 out of 5
* Marvell Technology (MRVL [https://seekingalpha.com/symbol/MRVL]): +239.24% — Quant rating: Hold with a score of 3.49 out of 5
* Intel (INTC [https://seekingalpha.com/symbol/INTC]): +238.99% — Quant rating: Strong Buy with a score of 4.99 out of 5
* Advanced Micro Devices (AMD [https://seekingalpha.com/symbol/AMD]): +195.94% — Quant rating: Strong Buy with a score of 4.99 out of 5

TOP TECH DETRACTORS OF THE QUARTER

On the other hand, Intuit (INTU [https://seekingalpha.com/symbol/INTU]) was the biggest detractor in the second quarter, slipping more than 39%. Goldman Sachs downgraded the stock, citing new competition across its product offerings and raising doubts about its long-term financial targets and consensus estimates for the next two years. Stifel also downgraded the stock and lowered its price target to $275.

Accenture (ACN [https://seekingalpha.com/symbol/ACN]) and Cognizant Technology Solutions (CTSH [https://seekingalpha.com/symbol/CTSH]) lost 37.02% and 36.57%, respectively, during the second quarter.

The analyst concluded that software is not yet out of the woods. While INTU is still delivering solid results, investors are looking ahead to potential long-term disruption. ACN is facing a similar issue, as many of its historical businesses appear to be in the crosshairs of AI. It is unclear when, or if, this AI overhang may ever subside.

Lin expects these companies to eventually increase share repurchases to take advantage of their discounted valuations.

HERE ARE THE TOP FIVE DETRACTORS OF THE QUARTER:

* Intuit (INTU [https://seekingalpha.com/symbol/INTU]): -39.17% — Quant rating: Hold with a score of 3.08 out of 5
* Accenture (ACN [https://seekingalpha.com/symbol/ACN]): -37.02% — Quant rating: Hold with a score of 2.73 out of 5
* Cognizant Technology Solutions (CTSH [https://seekingalpha.com/symbol/CTSH]): -36.57% — Quant rating: Hold with a score of 3.06 out of 5
* Leidos (LDOS [https://seekingalpha.com/symbol/LDOS]): -33.21% — Quant rating: Hold with a score of 2.64 out of 5
* PTC (PTC [https://seekingalpha.com/symbol/PTC]): -18.65% — Quant rating: Hold with a score of 3.11 out of 5

LOOKING AHEAD

As tech giants prepare to report quarterly earnings, investors will be watching for any indication of their capital expenditures on artificial intelligence as inflation-driven supply chain costs continue to impact the AI economy.

MORE ON STATE STREET TECHNOLOGY SELECT SECTOR SPDR ETF

* Why The Post-SpaceX Market Isn't A Classic Sector Rotation [https://seekingalpha.com/article/4918550-why-post-spcx-market-isnt-classic-sector-rotation]
* Markets Got Its Final Warnings [https://seekingalpha.com/article/4918306-markets-got-its-final-warnings]
* Amazing Buying Opportunity As Software Gets Crushed Again [https://seekingalpha.com/article/4917644-amazing-buying-opportunity-as-software-gets-crushed-again]
* Wells Fargo’s Scott Wren: ‘Buy technology amid pullback’ [https://seekingalpha.com/news/4608592-wells-fargo-s-scott-wren-buy-technology-amid-pullback]
* Tech volatility hits a 23-year extreme, beyond 2008 and 2020 levels [https://seekingalpha.com/news/4608068-tech-volatility-hits-a-23-year-extreme-beyond-2008-and-2020-levels]