Tech stocks are having a moment. Again. The Nasdaq is hitting fresh all-time highs, and everyone’s suddenly convinced that piling into the sector is the move. But here’s the thing: Manish Kabra, the Chief US Equity Strategist at Société Générale, is basically saying “pump the brakes.”
And he’s got receipts.
The setup is familiar. Earlier this year, an AI scare sent tech stocks into a tailspin, which meant valuations got cheap—historically cheap, actually. Wall Street’s finest immediately started shouting “buy the dip!” The sector responded by surging 18% since late March. Mission accomplished, right?
Not so fast, according to Kabra. He thinks there will be better entry points coming in early 2027, and he’s watching two specific metrics to know when it’s actually time to go all-in.
Metric #1: Free Cash Flow (The Boring But Important One)
Here’s the problem: hyperscalers—that’s Amazon, Google, Meta, Microsoft, and the rest of the AI-obsessed mega-cap club—have been hemorrhaging free cash flow since early 2024. They’re dumping money into data centers and AI infrastructure like it’s going out of style. Meta, Amazon, Google, and Microsoft alone are expected to spend around $600 billion on AI this year. That’s almost double what they spent in 2025.
Kabra’s prediction? Their aggregate free cash flow will actually go negative by the end of 2026 before bouncing back into positive territory in Q1 2027. That’s the signal he’s waiting for. When free cash flow turns positive, it means these companies are finally starting to monetize all that AI spending. That’s when the tape gets “very, very bullish,” as Kabra puts it.
Metric #2: The Capex-to-Sales Ratio (The “Show Me the Money” Test)
This one’s simpler: investors are tired of watching tech companies throw money at AI without seeing concrete returns. Kabra wants to see progress on monetization before he gets excited. He thinks that progress will show up in Q1 2027, and that’s the “most important signal” to monitor.
The Bottom Line
If Kabra’s right—and his track record suggests he usually is—tech stocks might struggle for the rest of 2026. That’s bad news for the S&P 500, which is about 32% tech. He thinks the index will have a tough time breaking above 7,000 until we see that free cash flow inflection.
But here’s a play: the equal-weighted S&P 500 is looking better right now. It’s more tilted toward materials, industrials, and utilities—sectors that should keep benefiting from America’s insatiable appetite for power. The Invesco S&P 500 Equal Weight ETF (RSP) gives you that exposure.
The moral of the story? Tech stocks aren’t going anywhere. But patience might actually pay off this time. Sometimes the best trade is the one you don’t make yet.
