"Investors should proceed with cautious optimism," Howard Chan, founder and CEO of Kurv Investment Management, told Benzinga in an exclusive interview.

While tech leaders like Apple Inc. (NASDAQ:AAPL) and Tesla Inc. (NASDAQ:TSLA) boast strong fundamentals, Chan said their valuations are "stretched."

Apple, Tesla: Stretched Valuations But Long-Term Potential

Apple and Tesla, often regarded as bellwethers for tech innovation, are facing increasing scrutiny from investors. Chan noted their dominant positions in their respective markets but emphasized the risks tied to their lofty valuations.

Apple's recent focus on AI and augmented reality has garnered attention, but investors may need to weigh its ability to expand its hardware and software ecosystem sustainably, he told Benzinga. Meanwhile, Tesla's rapid scale in electric vehicles is undeniable, but competition from legacy automakers and new entrants has intensified.

Chan underscores a critical point for both giants: "A correction is not a question of if but when." Despite this, he advises against completely exiting the tech sector, citing potential tax implications and the challenges of timing reentry.

Strategic Insights

For those eyeing diversification, Chan recommends the Kurv Technology Titans Select ETF (NASDAQ:KQQQ), which he says "balances momentum weighting during bull cycles with income generation during downturns." This strategy could mitigate risks while maintaining exposure to tech leaders like Apple and Tesla.

Beyond The Giants

Cloud computing remains a strong growth segment, with giants like Amazon.com Inc. (NASDAQ:AMZN) and Microsoft Corp. (NASDAQ:MSFT) positioned for further international expansion.

Read Also: Apple Reportedly In Talks With Tencent, TikTok-Parent ByteDance To Roll Out AI Features In China

Chan sees a similar pattern of cautious optimism for AI-focused firms, highlighting the "delivery risk" they face.

Hardware To Power Future Gains

Chan sees parallels in the growth trajectory of Apple and Tesla with the broader AI hardware sector. He predicts that "chipmakers and cloud computing service providers" will benefit from increased capital expenditures, a trend that could also support Apple's and Tesla's innovation pipelines in areas like AI, EVs and autonomous driving.