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Apple's big unveil met with a whimper

Apple's new mixed reality Vision Pro headset didn't do much to boost the stock. Apple is one of the handful of stocks that had been driving market gains this year. Jim Tierney, AB CIO of Concentrated U.S. Growth, joins Yahoo Finance Live to discuss market leadership and what lies ahead for the tech sector.

Video transcript

BRAD SMITH: And we're staying with the tech space. Shares of Apple, you're seeing them higher premarket this morning after announcing their widely-hyped Pro VR headset. Investors, they are wondering if Apple can bring virtual reality or even augmented reality into the mainstream as general interest in the metaverse has dwindled. Shares of Apple yesterday jumped briefly before losing the day's gains by market close. The stock has had a gangbuster type of year so far. Only a handful of tech stocks have driven the S&P 500 gains to date.

And Jim Tierney, AllianceBernstein CIO of Concentrated US Growth joins us now IRL, not in virtual reality, to give us the deeper dive into the new age of VR and a headset like this. I mean, you think about what we were just mentioning a moment ago, the handful of companies that have driven the gains this year within the S&P 500.

And for Apple seeing a new all-time high yesterday, touching that $3 trillion club almost, and then now making even more product announcements that signal what that next leg of growth could look like. I mean, if you're to summarize what we've seen in tech so far this year, what would that be?

JIM TIERNEY: Let me go to a point that Dan made that I thought was very interesting, which is it blows away the competition. And I think, for years, every tech company had its own lane and sort of stayed in its lane. And now the space is getting a lot more competitive. Everybody is up against each other. So I'm not sure that those free lanes or the white space exist, yet the market is treating it as every company is going to have a sort of unlimited run here. So I think that's an interesting point out of all this.

But what we've seen year-to-date is the tech companies, all of them have done incredibly well. The entire market's gain this year is driven by eight big tech companies. And most of it's multiple expansion. When you look at NVIDIA, when you look at Meta, yes, they've had really nice earnings revisions. Most of the companies have had downward earnings revisions year to date. So investors are just paying a heck of a lot more for a few select companies, and that's normally not healthy in the marketplace.

JULIE HYMAN: And I know that you look at concentrated US growth, which would seem to be maybe some overlap with some of what we're talking about, right? But what kind of concentration do you as an investor want right now in that growth area?

JIM TIERNEY: Sure. We run 20 stock portfolios, and our idea is to have a stock or a company against each theme, not two, three, four in the same. And what we've seen with those eight big tech companies, they're all rallying on AI. So that kind of concentration, and you see it whether it's the S&P or the Russell 1,000, those big companies are about 24% of the S&P, 40% of the Russell 1,000. To me, that's worrisome concentration. When I look at our portfolio, we're diversified. We own Microsoft, we own Amazon, but not the others. And that's hurt us this year, quite frankly.

BRAD SMITH: So for investors then that have looked at every single announcement around AI and said, yeah, that's got to be a multiplier effect for this company, by when should they be kind of benchmarking against how that's actually turning into revenue and profit margins for these companies?

JIM TIERNEY: It's a great question, and I don't know if many companies have a business model around AI yet. First of all, I know Microsoft does and NVIDIA is selling the chips for it. But how are other companies going to use that? And then I think the bigger question is, are only 8 or 10 companies going to benefit from this, or will every company benefit?

And the market so far hasn't given any credit to the other 490 companies in the S&P in terms of productivity savings. If this is as big as everybody believes it is, there are going to be huge productivity improvements. And whether that's getting more done with fewer people or just doing more with the same number of people, that should drive margins and that should drive earnings for the broader market. But the broader market is getting zero credit for that today.

JULIE HYMAN: Right. Well, they're not doing it today yet, right? And even if the market's a discounting mechanism, it doesn't seem like it's happening for a while.