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Beware the strategy of buying unprofitable tech stocks, Bernstein warns

A banner featuring the logo of Palantir Technologies (PLTR) is seen at the New York Stock Exchange (NYSE) on the day of their initial public offering (IPO) in Manhattan, New York City, U.S., September 30, 2020.

Andrew Kelly | Reuters

Unprofitable tech companies in the U.S. have been outperforming recently, but they could pose a threat to investors hoping to beat the broader market’s return.

Widely followed Bernstein tech analyst Toni Sacconaghi sounded the warning Monday, telling clients that the unusually high percentage of income-less tech companies could catch some investors off guard in the coming months.

Bernstein analyzed unprofitable stocks over the last 50 years. The firm found that unprofitable tech names can keep pace, if not slightly outperform, the broader market while growth stocks are in favor.

But that can quickly deteriorate, the analyst wrote, if investors’ tastes change or a company fails to generate income for multiple years.

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