The last time technology stocks had a better first half, Apple was touting its Lisa desktop computer, IBM was the most-valuable tech company in the U.S. and Mark Zuckerberg hadn’t been born.
On Friday, the Nasdaq wrapped up the first six months of the year with a 1.5% rally, bringing its gains so far for 2023 to 32%. That’s the sharpest first-half jump in the tech-heavy index since 1983, when the Nasdaq rose 37%.
It’s a startling achievement, given what’s happened in the tech industry over the past four decades. Microsoft went public in 1986, sparking a PC software boom. Then came the internet browsers of the 1990s, leading up to the dot-com bubble years and the soaring prices of e-commerce, search and computer-networking stocks. The past decade saw the emergence of the mega-cap, trillion-dollar companies, which are now the most valuable enterprises in the U.S.
While those prior eras featured sustained rallies, none of them had a start to the year rivaling 2023.
Even more stunning, it’s happening this year while the U.S. economy is still at risk of slipping into recession and reckoning with a banking crisis, highlighted by the collapse in March of Silicon Valley Bank, the financial nucleus for much of the venture and startup world. The Federal Reserve also steadily increased its benchmark interest rate to the highest since 2007.
But momentum is always a driver when it comes to tech, and investors are notoriously fearful of missing out, even if they simultaneously worry about frothy valuations.
Coming off a miserable 2022, in which the Nasdaq lost one-third of its value, the big story was cost-cutting and efficiency. Mass layoffs at Alphabet, Meta and Amazon as well as at numerous smaller companies paved the way for a rebound in earnings and a more realistic outlook for growth.
Meta and Tesla, which both got hammered last year, have more than doubled in value so far in 2023. Alphabet is up 36% after dropping 39% in 2022.
None of those companies were around the last time the Nasdaq had a better start to the year. Meta CEO Zuckerberg, who created the company formerly known as Facebook in 2004, was born in 1984. Tesla was founded in 2003, five years after Google, the predecessor to Alphabet.
As 2023 got going, attention turned to artificial intelligence and a flood of activity around generative AI chatbots, which respond to text-based queries with intelligent and conversational responses. Microsoft-backed OpenAI has become a household name (and was No. 1 on CNBC’s Disruptor 50 list) with its ChatGPT program, and dollars are pouring into Nvidia, whose chips are used to power AI workloads at many of the companies taking advantage of the latest advancements.
Nvidia shares soared 190% in the first half, lifting the 30-year-old company’s market cap past $1 trillion.
“I think you’re going to continue to see tech dominate because we’re still all abuzz about AI,” said Bryn Talkington, managing partner at Requisite Capital Management, in an interview with CNBC’s “Closing Bell” on Thursday.
Talkington, whose firm holds Nvidia shares, said the chipmaker has a unique story, and that its growth is not shared across the industry. Rather, large companies working on AI have to spend heavily on Nvidia’s technology.
“Nvidia not only owns the shovels and axes of this AI goldrush,” Talkington said. “They actually are the only hardware store in town.”
Remember the $10,000 Lisa?
Apple hasn’t seen gains quite so dramatic, but the stock is still up 50% this year, trading at a record and pushing the iPhone maker to a $3 trillion market cap.
Apple still counts on the iPhone for the bulk of its revenue, but its latest jump into virtual reality with the announcement this month of the Vision Pro headset has helped reinvigorate investor enthusiasm. It was Apple’s first major product release since 2014, and will be available starting at $3,499 beginning early next year.
That sounds like a lot, except when compared to the price tag for the initial Lisa computer, which Apple rolled out 40 years ago. That PC, named after co-founder Steve Jobs’ daughter, started at $10,000, keeping it far out of the hands of mainstream consumers.
Apple’s revenue in 1983 was roughly $1 billion, or about the amount of money the company brought in on an average day in the first quarter of 2023 (Apple’s fiscal second quarter).
Tech was the clear story for the equity markets in the first half, as the broader S&P 500 notched a 16% gain and the Dow Jones Industrial Average rose just 2.9%.
Investors looking for red flags heading into the second half don’t have to look far.
Global economic concerns persist, highlighted by uncertainty surrounding the war in Russia and Ukraine and ongoing trade tensions with China. Short-term interest rates are now above 5%, meaning investors can get risk-free returns in the mid-single digits from certificates of deposit and high-yield savings accounts.
Another sign of skepticism is the absence of a tech IPO market, as emerging companies continue to sit on the sidelines despite brewing enthusiasm across the industry. There hasn’t been a notable venture capital-backed tech IPO in the U.S. since late 2021, and investors and bankers tell CNBC that the second half of the year is poised to remain quiet, as companies wait for better predictability in their numbers.
Jim Tierney, chief investment officer of U.S. concentrated growth at AllianceBernstein, told CNBC’s “Power Lunch” on Friday that there are plenty of challenges for investors to consider. Like Talkington, he’s unsure how much of a boost the broader corporate world is seeing from AI at the moment.
“Getting to AI specifically, I think we have to see benefit for all companies,” Tierney said. “That will come, I’m just not sure that’s going to happen in the second half of this year.”
Meanwhile, economic data is mixed. A survey earlier this month from CNBC and Morning Consult found that 92% of Americans are cutting back on spending as inflationary pressures persist.
“The fundamentals get tougher,” Tierney said. “You look at consumer spending today, the consumer is pulling back. All of that suggests that the fundamentals are more stretched here than not.”
WATCH: CNBC’s full interview with Ron Insana and Jim Tierney