After a 57% surge in the same year, Wall Street collectively "sings empty": profitless technology stocks appear in a frenzy at high levels, with major banks shouting "walk as fast as you can".

Notice that the riskiest sectors in the technology industry are currently outperforming their larger peers at the fastest pace in nearly six years. Now, many on Wall Street are warning investors who hold these stocks to get out while they still can. Goldman Sachs' basket of unprofitable tech companies' stocks rose 27% in May, outpacing the Nasdaq 100 index by 17 percentage points, marking the largest monthly excess return since November 2020. So far this year, the portfolio has risen by 57%, while the S&P 500 index has only risen by 11%. After such a sharp rise, Morgan Stanley's market intelligence team, led by Andrew Taylor, believes that given the potential for U.S. Treasury yields to remain high, investors would be wise to "exercise caution with the riskiest (hottest) parts of the tech sector." Taylor advocates shifting funds towards high-quality growth stocks within the industry, especially in the context of climbing bond yields, as this often has the greatest impact on small and loss-making companies. This unprofitable stock portfolio covers a wide range of areas, including space and satellite-related companies like NextNav Inc., small artificial intelligence (AI) companies like BigBear.ai Holdings Inc., and drone manufacturers like Unusual Machines Inc. - the latter's stock price more than doubled in May. He added that the stock buyback activities of larger, more profitable tech stocks "provide support for shifting towards quality assets." As noted by Nationwide's chief market strategist Mark Haefke, there is a significant overlap in the market forces that are driving the rise of both the Goldman unprofitable tech stock portfolio and the retail investor's favorite stock portfolio. He describes this trend as a shared sentiment between retail and institutional investors: "When the market rises, offer me your highest leveraged risk exposure that you can provide." In fact, since early April, Goldman's unprofitable tech stock portfolio has risen almost in sync with the retail investor's favorite stock portfolio. Kieran Osborne, senior investment portfolio manager at Mission Wealth Management LLC, said, "We will remain cautious in interpreting the recent rise as a signal of long-term attractiveness for unprofitable tech companies - there will be winners and losers, and it is difficult to distinguish between the two." In contrast, Haefke stated that profitable tech stocks are currently offering investors a lot of opportunities, especially after a standout earnings season. He also urged investors to exercise caution with the soaring of unprofitable tech stocks, citing multiple risks, including rising borrowing costs, and the counterintuitive risk that these companies may begin to turn losses into profits. "It's ironic that most of these companies, once they start making money, their stock prices often fall because now you have tangible basis for assessing their value," Haefke said. Jonathan Golub, chief stock strategist at Seaport Global Holdings LLC, said it is certain that the rising U.S. Treasury yields are increasingly becoming an issue for the entire tech industry (not just the unprofitable group), as larger companies are borrowing funds to finance the construction of data centers for servicing artificial intelligence. "Even companies that do not have debt themselves (such as semiconductor/hardware enterprises) will be more sensitive to interest rate changes because their customers are taking on more debt," he said. Nevertheless, the huge excess returns of unprofitable tech stocks - especially in the midst of the tech sector's almost vertical trend that has drawn comparisons to the dot-com bubble era - make this group appear particularly fragile. Michael O'Rourke, chief market strategist at JonesTrading Institutional Services, said, "I think everything we're seeing in the tech industry is an all-around increase, which is in itself a reason to be cautious. Unprofitable tech stocks just push this risk even higher."