Following a strong 4-month rally, the tech sector might once more be a stock-picker’s environment.

Which is to say, generating good returns is likely to require a greater level of selectiveness than it has in recent months. Valuations and business trends could both figure prominently in determining which tech companies are able to keep rallying from this point on.

In December, as tech stocks tumbled across the board, we didn’t have a stock-picker’s market as much as a market where a wide variety of tech stocks looked like buys as long as macro and cyclical conditions didn’t serious deteriorate due to a trade war and/or hawkish Fed policies. Valuations for tech companies in many different industries fell sharply, enough so that — while some of the beaten-up names have performed better than others since then — generating good returns at that time was less about being a stock-picker than simply about having a healthy conviction that the sky wasn’t falling.

I felt that chip stocks and Chinese tech stocks, two groups of companies that had gotten quite cheap as the Nasdaq tumbled, looked especially well-positioned to rally if macro and cyclical fears proved overdone. Both groups of companies have rallied strongly since then, but admittedly, the same could be said for U.S. software and Internet stocks, many of which carried higher multiples, as well as various other tech names.

Where do tech stocks go from here? The simple answer would be to say that names with less-inflated multiples are likely to do better, now that a fair amount of across-the-board multiple inflation has happened. But while valuations are bound to matter, one also can’t ignore the fact that business conditions and risks can vary quite a lot from one group of companies to another.

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