Big Tech braces for judgment week, as JPMorgan flags extreme crowding
JPMorgan warns crowding is off the charts
Neuren shows what happens when everyone's already in
This is one of those weeks where Aussie investors in US tech companies hold their breath and hit refresh every morning.
The 'Magnificent Seven' earnings parade kicks off tonight in the US, with Alphabet and Tesla first on deck.
Investors will be running the ruler over these results, as these are the numbers that could make or break a narrative.
For months now, the market's been sprinting ahead, pricing in a future where AI saves the economy, cures disease, and maybe even folds your laundry.
But now it's time for reality to catch up.
Alphabet needs to prove it's more than just ads and AI PowerPoints. Tesla needs to prove it's still an automaker, not just a proxy for Elon's fanbase.
Wall Street's expectations aren't exactly modest.
Analysts reckon S&P 500 companies will post 5.6% earnings growth for Q2, the slowest pace in three quarters, but still enough to keep the bulls hopeful.
The Mag Seven alone are tipped to deliver 14.1% growth, while the other 493 stocks limp along at just 3.4%.
In other words, Big Tech pretty much drives the whole index now.
That kind of concentration might excite momentum traders, but it's making the strategists nervous.
And that's why JPMorgan hoisted the red flag earlier this week.
When too many people squeeze into the same boat
JPMorgan's top quant Dubravko Lakos-Bujas warned investors are piling into high-octane tech names at "100th percentile" crowding levels – the most extreme in 30 years.
Palantir, Coinbase, Nvidia, all momentum darlings, are now packed to the gills with hot money.
In just three months, positioning in these 'high-beta' stocks rocketed from the 25th percentile to the 100th, the fastest spike the bank's seen since it started tracking this stuff in the early '90s.
Why does this matter?
Because when everyone's already long, there aren't many fresh buyers left to keep the rally going, and if sentiment even twitches, the rush for the exit can get messy.
That's what JPMorgan calls overcrowding, and right now, it's not a stock-specific issue.
It's a market-wide signal that complacency may be setting in, right when the music could be slowing.
'We believe the current 100% percentile crowding based on our quantitative analysis not only presents a risk for this crowded segment, but is also a red flag for the broader market implying there is rising complacency in the short term,' wrote Lakos-Bujas.
He added this has been driven by a combination of markets increasingly pricing in a goldilocks outcome, tariff exhaustion, and institutional investors chasing more speculative equity segments of the market.
So what exactly is '100th percentile crowding'?
When portfolio strategists say a stock is in the 100th percentile for crowding, they don't mean everyone owns it.
They mean it's more owned and more positioned-for than 99% of other stocks in the same universe.
Analysts look at things like fund ownership, retail trading spikes, short interest, even Google searches and Reddit threads.
They mush it all into a 'crowding score,' then rank every stock from least to most crowded.
If yours lands in the top 1%, you're in the 100th percentile.
It's about positioning risk. And that risk doesn't show up in P/E ratios, it shows up when the herd changes direction.
That's why hedge funds track it obsessively.
If a stock is over-loved, even good news might not be enough to keep it afloat.
Could Aussie stocks be crowded too?
Let's bring it home.
The ASX might not have a Magnificent Seven, but we've got our own examples of crowding: stocks that got so much love, so quickly, they became vulnerable to their own popularity.
Neuren Pharmaceuticals (ASX:NEU) is probably a case in point.
After its Rett Syndrome drug Daybue got FDA approval via its US partner Acadia, the stock took off.
Retail punters jumped on board. Funds bulked up.
Liquidity was thin, and soon, Neuren was sitting at the top of the small-cap biotech pile, likely in the 95th to 100th percentile of ownership concentration among its peers.
The stock ran past $25, but then started drifting back to the $12–13 range, not because the story changed but because investors who wanted in were already there. That's crowding in action.
That's not to say Neuren is a bad company. Far from it.
But when positioning is maxed out, the risk/reward flips ... and it doesn't take much for the herd to bolt.
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