By Jamie Chisholm
Technology has lifted the market higher and the sector has further to go, says Ned Davis Research
A 33 megawatt data center with closed-loop cooling system on April 14, 2026 in Vernon, California. A surge in demand for AI infrastructure is fueling a boom in data centers across the country and around the globe.
Stocks are at a record high, helped by a resurgence of Big Tech, as shown by the Nasdaq Composite registering a 12-day winning streak during which it rallied 15.9%.
Optimism about the profits to be made from artificial intelligence has been revived, with chipmaker Nvidia, for example, jumping 20% in just 12 sessions.
But AI beneficiaries - such as tech hardware, compute providers and energy providers - are not a homogenous group. And now Ned Davis Research argues that while technology XLK is back in favor, the utilities sector XLU is losing its defensive shine. Accordingly, they upgrade tech to overweight and downgrade utilities to marketweight.
In a note published late Thursday, NDR's U.S. sector strategist Rob Anderson and senior U.S. equities analyst Thanh Nguyen highlight that even though tech has rebounded strongly from the 18% tumble into the Mar. 30 trough, &#34;the risk/reward has improved for the sector.&#34;
That's because earnings estimates have held up and valuation multiples have slipped back to long-term averages. They point out that tech had the highest earnings beat rate in the fourth quarter, and say another strong quarter could trigger more upward earnings revisions and support further expansion of the share price to earnings multiple.
The NDR team says their bullish case is not just about valuation; it is also about improving market breadth inside tech. Semiconductors and hardware have outperformed during the rally, they say, with semiconductors hitting a new relative strength high and hardware trading near a two-year high, even as software remains weak.
They are willing to look through software's pain because the mega-caps are doing enough lifting. With the sector's biggest names - Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT) - accounting for more than 56% of tech's market cap, if two of the three stay in relative uptrends, &#34;the sector should continue to outpace the S&amp;P 500 SPX.&#34;
The utilities sector, by contrast, has had a tougher April, registering only a fractional gain. NDR says a strong first quarter - when the sector rose 7.5% - plus higher bond yields, has made its dividend yield &#34;relatively less attractive,&#34; especially since the utilities sector now yields 1.6 percentage points less than the 10-year Treasury BX:TMUBMUSD10Y. That's near the widest spread since 2007.
NDR also notes that its technical model tracking the utilities sector &#34;plummeted in April,&#34; with several price-based indicators turning bearish.
NDR acknowledges that AI-driven electricity demand should remain a long-term tailwind for utilities, but say &#34;income alone is no longer a compelling reason to invest in the sector.&#34; In other words, the yield story for utilities has weakened just as the technical signals have rolled over.
Meanwhile, another NDR report, published Thursday by chief global strategist Tim Hayes, also notes the propulsion tech has provided to the broader market rally. But he's worried that means the rebound has not been sufficiently broad-based as only one of five technical gauges he calls &#34;breadth thrust indicators&#34; has generated a buy signal.
&#34;We would be likely to upgrade our equity allocation from 50% to 55%, getting in line with the benchmark allocation,&#34; says Hayes. &#34;But for the degree of broadening that would warrant an upgrade, the market wouldhave to defy the four-year cycle tendency for weakness from April to October.&#34;
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is down, while oil prices (CL.1) fall back and gold futures (GC00) are trading around $4,816 an ounce.
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The buzz
Netflix shares (NFLX) are down sharply after beating earnings forecasts, but disappointing over guidance. Co-founder Reed Hastings said he was exiting the company.
U.S. President Donald Trump said the Iran war was &#34;going along swimmingly,&#34; while a 10-day cease-fire between Israel and Lebanon was due to start on Friday.
Companies due to report include Regions Financial (RF), Truist Financial (TFC) and State Street (STT).
The Bank of England's governor is among senior financial officials warning that latest AI models could threaten world banking system.
Fed officials making comments include San Francisco Fed President Mary Daly speaking at 11:30 a.m., Richmond Fed president Tom Barkin at 12:15 p.m., and Fed governor Christopher Waller at 2 p.m.
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(END) Dow Jones Newswires
04-17-26 0651ET

NVDA

AAPL

.IXIC

Ned Davis Research has upgraded the technology sector to overweight while downgrading utilities to market weight, citing strong performance and earnings potential in tech driven by AI. The Nasdaq Composite has surged, with major tech stocks like Nvidia and Apple leading the charge. Conversely, the utilities sector has struggled, with rising bond yields making its dividend less attractive. Despite long-term AI-driven demand for electricity, the yield story for utilities has weakened. Overall, the market shows mixed signals, with concerns about the breadth of the rally.

- A surge in demand for AI infrastructure is driving growth in data centers, boosting tech stocks, particularly in the semiconductor and hardware sectors.  
- Ned Davis Research reports a strong rebound in technology, upgrading it to overweight, while downgrading utilities due to decreased yield attractiveness amidst rising bond yields.  
- Despite concerns about a lack of broad market participation, the overall market sentiment remains positive, supported by key tech players like Nvidia, Apple, and Microsoft.

Dow Jones

NVIDIA

Apple

NASDAQ Composite Index

Schw Us L-Cp Grw

Global X Robotics & Artificial

iShares US Digital Infrastructure and Real Estate ETF

Invesco Nasdaq 100 ETF

First Trust Cloud Computing

VG S&P 500

Fidelity Nasdaq Composite Index ETF

ISHRS S&P Glb It

Direxion Semicon Bull 3X

Franklin Exponential Data ETF

iShares Semiconductor ETF

SPDR S&P 500

VG Growth

Ark Innovation ETF

Direxion Daily NVDA Bull 2X Shares

iShares US Tech

Invesco Semiconductors ETF

First Trust Index NextG ETF

Global X Cloud Computing ETF

VG Info Tech

Proshares UltraPro QQQ

GraniteShares 2x Long NVDA Daily ETF

Invesco QQQ Trust

YieldMax NVDA Option Income Strategy ETF

T-Rex 2X Long NVIDIA Daily Target ETF

Global X Data Center & Dgtl Infrs ETF

iShares Core S&P US Growth

T-Rex 2X Long Apple Daily Target ETF

iShares Future AI & Tech ETF

iShares Expanded Tech Software Sector ETF

First Trust NASDAQ-100 Equal Weighted

VanEck Semiconductor ETF

VG Total Stock

Global X Internet

GraniteShares 2x Long AAPL Daily ETF

Spdr Select Tech

Select Sect Spdr Util

Microsoft

S&P 500

Netflix

Regions Financial

Truist Financial

State Street

NVIDIA Corporation

State Street® US Equity Premium Inc ETF

These two sectors have been boosted by AI hopes. Why investors should buy one, and trim exposure to the other.