Big Tech's blistering rally lifted the whole stock market in 2023. But that may be about to end - JPMorgan, Morgan Stanley, BofA warn

• Mega-cap tech stocks have powered the US stock market's 2023 rally, but that may not last for long.
• Analysts at top banks including Morgan Stanley, JPMorgan and BofA warn the sector faces a selloff as a recession looms.

Mega-cap tech stocks powered the US equity market's impressive gains so far in 2023, but a growing chorus of analysts now warn of a selloff in the sector as an economic downturn looms.

The tech-heavy Nasdaq Composite index is up 18% year-to-date, propelled by stellar gains in the likes of Meta Platforms and Nvidia, each of which has jumped around 98%. Chipmaker AMD rallied 50%, while electric-vehicle maker Tesla rose 35%. Apple, Amazon and Alphabet advanced around 32% each.

Investors have been drawn to tech stocks by their strong run, the buzz over artificial-intelligence since the release of ChatGPT, as well as expectations that the Federal Reserve will soon end its interest-rate increases as inflation cools.

But with the economic outlook turning gloomy and the banking turmoil fueling fears of a credit crunch, analysts including those from big Wall Street banks such as Morgan Stanley, JPMorgan, Bank of America warn that tech stocks are in for a setback.

However, not everyone agrees. There are some, like Fundstrat's Tom Lee, who think the sector's rally still has room to extend. Below is a selection of the latest tech-stock outlooks from Wall Street analysts.

Chris Toomey, Morgan Stanley

The technology sector isn't immune to economic risks - and could be the "next domino" to fall as part of an overall stock-market decline, Toomey, a managing director at the Wall Street bank's wealth management division, said in an interview with CNBC on Friday.

"I don't think the technology industry is immune from the overall economy," he said, adding that the US is heading into a earnings downturn and is vulnerable to an economic slump.

"We now are officially going into an earnings recession. There's is a 50-50 chance, depending on which way you look, as to whether we're going into an actual economic recession," he said.

Jason Hunter, JPMorgan

Mega-cap stocks have powered the equity rally of 2023, but these market leaders now face a bigger selloff risk than other names as a recession looms, according to JPMorgan strategist Jason Hunter.

"At some point, and as the growth data starts to decelerate more toward negative growth territory, that's when you tend to see flight to quality turn into flight to cash," Hunter told CNBC Thursday.

"And you see that rotation where we actually think these mega-cap names may temporarily – they may be more at risk than the cyclical companies because of the crowding that's developed here."

Michael Hartnett, Bank of America

This year's sizzling rally in tech stocks could be stopped in its tracks by a recession, according to the Bank of America strategist.

Michael Hartnett - who correctly called last year's selloff - said in a research note Friday that he expects a "recession to crack credit and tech as in '08," referring to the economic slump that dragged down stocks after the global financial crisis.

Tom Lee, Fundstrat

However, Fundstrat's managing partner and head of research Tom Lee thinks some of the big tech stocks still have room to advance further.

"Our base case for FAANG this year was that it could rise as much as 50%," Lee told CNBC earlier this month, referring to the five largest US tech companies including Facebook (now Meta Platforms), Amazon, Apple, Netflix and Google.

"You can't really say that you're going to have diminished demand for these products. It's actually going to grow, and there's not new competition," Lee said. "So actually that their ability to make future profits is higher, and that's why I think their PE could expand. And again, that really pulls up the whole market."

Read more: Tech stocks' superb 2023 is about to be shattered by a recession, Bank of America warns