The tech sector is officially in a bubble, and Citi says investors should join the hype

Published Wed, Jul 19 20231:30 PM EDTUpdated Wed, Jul 19 20233:21 PM EDT

It's time for investors to join the tech bubble, according to Citi. The Wall Street firm said tech stocks officially entered a bubble in May after their extraordinary run-up. The tech-heavy Nasdaq Composite is nearly 38% higher this year. Nvidia , the major beneficiary of generative artificial intelligence, is up more than 200%, as interest grows around the trend. For some, the rally could mean the sector is due for a pullback as a bubble means prices have reached an unsustainable level and can burst. However, Citi thinks the rally can go on for some time. "The tech sector has entered a bubble, but we believe there is still time to join the hype, not fade it," strategist Hannah Sheetz wrote to clients Tuesday, following a review of 28 sector bubbles over the last four decades. .IXIC YTD mountain Tech in a bubble, Citi says The analyst said tech bubbles usually return 6.4% in addition to the market for the first six months after the signal flashes. In fact, tech shares enjoy their best gains 16 months after the signal flares. What's more, these bubbles last nearly two years on a median basis. The analyst said the signal could trigger some volatility in the near term. However, she emphasized a dip is a buying opportunity as the bubble could continue for much longer. At present, the strategist said the "AI bubble is still meaningfully cheaper than the 2000 internet bubble." "The first ~30 trading days after the original trigger point has been reached have historically presented a buying opportunity, as prices typically pull back for a few weeks before moving higher," Sheetz wrote. "Historically, a tech bubble will stay inflated for a median of 23 months before hitting our bubble exit condition. The median performance from signal to peak outperformance is 23.3% in excess of the market, reached after a median of 16 months for tech bubbles." Earnings growth for tech tends to rise after a bubble signal. Additionally, a bubble in any sector usually means the broader market also does well, the bank said. — CNBC's Michael Bloom contributed reporting.