Mega-cap tech stocks are 'overbought' and their rally may be getting closer to stalling out, Fundstrat's Mark Newton says

• Mega-cap tech stocks are overbought and their rally may be closer to stalling, Fundstrat's Mark Newton said.
• But there's no evidence yet of them topping out, he said.
• Investors are optimistic about the group 'for a lot of the right reasons' like AI, he added.

Mega-cap tech stocks are 'certainly overbought' and their rally may be closer to stalling - but there hasn't been any evidence of them topping out, according to Fundstrat's Mark Newton.

"I love the group. I think it's probably a bit extended. I think we're close to a time when we probably stall out in large-cap tech and we really need to see that rotation into other groups being financials, healthcare industrials, discretionary to really help to buoy this market," Newton, the firm's head of technical strategy, told CNBC on Thursday.

Still, investors have been optimistic about high-growth tech group stocks 'for a lot of the right reasons' like the advancements in artificial intelligence, and they're thought of as safer stocks that can weather risks better, according to him.

He added that there's no time limit on how long a stock can remain overbought, which is why it's dangerous to say that the group is topping - especially since it has kept pushing higher over the last few months.

"We really have seen no evidence of that. Still a lot of enthusiasm. I still like a lot of these stocks, but many of them are pressing up against very important levels," he said, referring to big-name US tech companies such as Apple, Nvidia, Microsoft and Alphabet that have led the market's rally.

The tech-heavy Nasdaq Composite index is up 21% year-to-date, propelled by stellar gains in the likes of Meta Platforms and Nvidia, each of which has jumped over 100%. Microsoft, Apple, Amazon and Alphabet advanced over 32% each.

"At Apple, for example, right up near $176 is going to prove to be important. Nvidia, Microsoft, Alphabet, all these names have really shown tremendous strength and it really helped this market along when other sectors haven't worked so well," he said.