The technology sector will have fewer positive surprises in the third quarter

Investing.com — Fewer positive surprises are expected in third-quarter earnings for technology stocks, according to analysts at Citi.

In a note to clients late on Thursday, analysts said their model forecasts indicate that quarterly earnings in the sector are expected to fall 5% from the previous three-month period. However, compared to other sectors, technology names are expected to deliver the largest number of better-than-anticipated results, Citi said.

Technology, along with healthcare, were the sectors that reported the highest percentage of positive surprises in the second quarter, Citi research shows.

However, the market capitalization of many global mega-tech groups still fell sharply in July after the release of their latest quarterly earnings reports, as investors fretted over high valuations and expressed concern that massive investments recent developments in artificial intelligence would lead to only modest gains.

Software giant Microsoft (NASDAQ: ) and Google owner Alphabet (NASDAQ: ) , in particular, shed about 6% of their market capitalization at the end of July, to $3.1 trillion and $2.1 trillion, respectively trillion dollars, Reuters reported, citing LSEG data. Both are still hovering around those levels.

Meanwhile, AI chip designer Nvidia (NASDAQ: 3.01 trillion dollars.

Third-quarter returns show positive surprises were “more concentrated” among larger-cap stocks, Citi noted, although they added that beats “increased significantly for smaller-cap stocks.”

In terms of earnings growth, consensus forecasts for the Russell 1000 — or the top 1,000 groups by U.S. market capitalization — call for 5.2 percent year-over-year growth. Excluding the so-called Magnificent 7 group of megacap firms, earnings are seen rising 2.6%.

(Reuters contributed reporting.)