Profitless Tech Surges 57% As Wall Street Signals Caution

Profitless Tech Surges 57% As Wall Street Signals Caution

Profitless technology shares are running hot again, and Wall Street is starting to tell investors not to get too comfortable. A Goldman Sachs GS basket of money-losing tech companies surged 27% in May, beating the Nasdaq 100 Index QQQ by 17 percentage points in its strongest outperformance since November 2020. The group is now up 57% this year, compared with an 11% gain in the S&P 500 Index (SPY), even after the basket erased early losses to rise around 0.2% in Monday trading.

The move has been led by some of the market's most speculative technology names, including space and satellite companies such as NextNav Inc. NN, smaller AI players such as BigBear.ai Holdings Inc. BBAI, and drone makers such as Unusual Machines Inc. (UMAC), which more than doubled in May. JPMorgan's Market Intelligence desk, led by Andrew Tyler, warned that investors may want to be wary of the spiciest parts of tech, especially if bond yields stay elevated. Tyler also pointed investors toward higher-quality technology companies, where buyback activity from larger and more profitable names could support a move away from the riskiest parts of the sector.

The concern is that this rally may be less about business quality and more about investors chasing the most leveraged exposure to a rising market. Mark Hackett of Nationwide said the gains in profitless tech and retail-favorite stocks show both retail and institutional investors reaching for higher-risk upside, while Kieran Osborne of Mission Wealth Management cautioned that recent gains should not be read as proof that money-losing technology businesses are attractive over the long term. With rising borrowing costs, AI data-center spending, and renewed comparisons to the dot.com bubble all hanging over the sector, profitless tech could still produce winners, but the group may now be entering a more fragile phase.