Tech sector surpasses bubble peaks – and could still be the ‘best place to be’

This analyst thinks tech's expensive but the best place to be

The S&P 500 information technology sector hit an all-time high on Wednesday, narrowly surpassing the peak seen in March 2000. With a 24.4 percent gain this year, it continues to be the market's best-performing sector by a wide margin.

Even so, some think the stocks — and heavyweights such as Apple, Facebook and Alphabet, in particular — will keep climbing, and say it's a smart place for investors right now.

"A lot of investors think big tech numbers are expensive; they're absolutely right. They're expensive relative to normal times, they're expensive relative to their own recent or longer-term past," Max Wolff, chief economist at Disruptive Technology Advisers, said Wednesday on CNBC's "Trading Nation."

"But they're still growing," he said. "They still have great margins. So we still think they're the place to be. I just think you have to keep your eye on where the exit is in all of these risk assets. For now, tech is the expensive but best place to be, as far as we see."

Specifically, Wolff is watching names such as Microsoft, Alphabet, Facebook and Apple, which continue to "pull a lot in their wake," and hold a lot of weight "in a market cap-weighted world."

On Wednesday, the biggest contributors to the were Apple, Microsoft and Facebook. They have risen 54 percent, 28 percent and 35 percent in the last year, respectively; shares of Apple hit an all-time high in Wednesday trading.

"We think tech continues to power up, because tech is dominant. It's American/global dominance area, and there aren't that many of those. And it tends to be a place where we keep seeing good revenue numbers and great margin numbers," Wolff said.

In a note to clients on Monday, Bank of America Merrill Lynch equity and quantitative strategists reiterated their market-weight position in information technology given its "mixed valuation, elevated position risk, but still attractive fundamentals and quant scores."

Positioning in the sector is at a record post-2008 overweight by large-cap active funds, the strategists, led by Savita Subramanian, wrote. Specifically, the so-called "FANG" stocks of Facebook, Amazon, Netflix and Alphabet were noted.

Furthermore, according to the report, short interest in the big-tech quartet has dropped from 3 percent in 2009 to less than 1 percent today.

Disclosure: Max Wolff does not personally own shares of Microsoft, Alphabet, Facebook or Apple. His family has ownership of Apple and Alphabet shares.