Investor sentiment toward tech has rarely been so volatile. A month ago, technology stocks were the least favorite among institutional investors, and now they have jumped to second place in preferences after healthcare.

"Investors are notably now the most bullish about US tech stocks since November 2021, with sentiment recovering from a brief loss of confidence in January," according to S&P Global Market Intelligence's latest Investment Manager Index, a monthly survey of investment management professionals.

Though investors remain worried about valuations and the geopolitical environment, they believe that strong fundamentals and shareholder returns are the key drivers of stock market performance, something that contributed to the dramatic change in sentiment.

"Most notably, equity fundamentals are now perceived to be more supportive to the market than at any time since March 2022, contrasting markedly with the mild drag reported in January," the report said.

S&P Global's Investment Manager Index survey includes monthly responses from a panel of just under 300 participants employed by firms that collectively represent approximately $3.500 trillion in assets under management. Data was collected Feb. 5–8. If you would like to receive the full report on a regular basis or participate as a panel member, please email economics@spglobal.com.

Steeply rising demand for artificial intelligence experienced by a handful of tech juggernauts has propelled the S&P 500 Index to record highs. The Magnificent Seven stocks — NVIDIA Corp., Alphabet Inc., Microsoft Corp., Amazon.com Inc., Tesla Inc., Apple Inc., and Meta Platforms Inc. — collectively reported record free cash flow growth in 2023 surpassing even the ebullient pandemic environment, according to S&P Global Market Intelligence.

Nvidia's revenues and profits have skyrocketed as demand for its chips that power AI applications has gone through the roof amid a lack of viable alternatives. S&P Global Market Intelligence 451 Research's Tech Demand Indicator has been recovering in recent quarters, largely due to a strong appetite for cloud infrastructure and artificial intelligence applications.

"We believe peak spending is still ahead for the AI market as many enterprises head down the AI use case path over the next few years," Wedbush Securities analyst Dan Ives said in a recent note.

Some tech juggernauts are returning cash to shareholders, boosting returns. Meta Platforms recently announced a dividend and additional share buyback, and analysts believe that Alphabet might follow suit as the Google search engine owner has the largest cash pile among the Magnificent Seven. Cash dividends and buybacks are now more important to investors in terms of supporting returns than they have been since August 2022, according to Market Intelligence's Investment Manager Index survey.

451 Research is a technology research group within S&P Global Market Intelligence.