'You're taking a knife to a gunfight': Veteran strategist warns retail investors off tech dip

Baird technology strategist Ted Mortonson says buying the current tech dip is possibly "the worst strategy going forward" for retail investors. He made the comment in an interview released Saturday on the Excess Returns podcast, after a stretch of S&P 500 selling driven by worries about corporate spending on artificial intelligence.

So far, investors don't seem to be rushing back in to buy beaten-down stocks. Mortonson thinks that restraint is wise.

Where are we in the cycle?

After a cycle of "overexuberant speculative greed" in 2024 and 2025, Mortonson said retail-investor behavior has shifted into "concern and fear." It hasn't yet reached the "panic and capitulation" phase he witnessed during the 2000 dot-com bust. Mortonson has covered the tech sector for three decades and talks regularly with more than 100 institutional technology portfolio managers.

Those institutional managers sold semiconductor names as they rallied this year, which limited their losses when chips fell out of favor. They aren't ready to buy back yet, he said.

The numbers explain the caution. The PHLX Semiconductor Index is up 52% this year — on pace for its best year since 2023, when it rose 64%, according to Dow Jones Market Data. But it's down 26% from its all-time high reached June 22, and it has lost 14% in October alone, tracking toward its worst monthly return since July. The S&P 500 has fallen 2.4% over the past two weeks, its worst such performance since late March, including one sharp selloff last Thursday.

What does this change for retail investors?

Mortonson's core lesson comes straight from his experience of 2000: wait for the chart to go flat.

"Sometimes you just have to have the patience to push away from the table and not do anything, and one of the biggest lessons I learned in 2000 is you don't buy a market until some of your key names have based and get kind of the dead man chart where they just go sideways for a few weeks," he said.

At that point, most of the selling in those stocks has likely already happened. "I don't think we'll get capitulation this cycle, but we could have some real damage in a few days if these macros go sideways," he said.

His macro worries are specific:

• The midterms, which could bring a tougher climate for data-center building.
• A reboot of hostilities around the Iran war after the elections.
• Critical vulnerabilities in PHP, a commonly used programming language, which website operators are rushing to patch — a concern among the managers he speaks with.

He also warned that brutal sector rotation is coming, and institutions see it first. "From the retail perspective, you're taking a knife to a gunfight, we're generally about six months ahead of you," he said.

Why he still sees a long AI runway

Mortonson said the AI cycle will be unlike anything seen before, because the infrastructure build-out will probably run through 2030. He cited an estimate that 70% of the Forbes Global 2000 largest companies are behind on upgrading their systems for AI — work that could take a couple of years, followed by an even longer enterprise-adoption phase.

"Right now as we speak, the demand for compute is insatiable; it's not even close to supply," he said. "Most of the names that I'm familiar with that are the winners can only supply 70% of contracted demand; 30% is going into backlog."

His winners' list: dominant large-cap companies and monopolies with strong free cash flow — Amazon, Meta, Microsoft and Alphabet, along with SpaceX. Of that group, two or three will rise to the top, he said. A second tier of winners includes security, optical memory and advanced logic companies.

Small caps won't compete in this cycle because they lack cash flow, but they will become takeover targets over the next two years — notably in security and application software.

Can the market absorb the AI IPO wave?

On the question of whether markets can absorb massive IPOs from AI giants like Anthropic, Mortonson pointed to a hard constraint: institutional managers don't hold more than 4% cash. If they have to absorb too many AI IPOs in a quarter or two, they'll have to sell something else to make room.

"That's what I think the retail consumer has got to understand that, if the IPO market truly gets turned on right now, it's very impacted," he said.

The practical takeaway for practitioners: the winners are set, the backlog is deep, and the entry point — a few weeks of sideways trading — hasn't arrived yet.