UBS downgrades US tech stocks to Neutral, prefers China and Europe

Investing.com - UBS analysts say that global stock markets have continued to rise this year, but performance is becoming increasingly uneven, with cyclical regions and sectors outperforming U.S. tech stocks.

Get in-depth analyst research exclusively on InvestingPro.

UBS strategist Fabian Deriaz and Chief Investment Officer for the Americas and Global Equity Head Ulrike Hoffmann-Burchardi stated in a report that they remain confident in a cyclical recovery, thanks to easing tariff pressures, expectations of Fed rate cuts, and more favorable fiscal policies.

However, UBS now “downgrades the U.S. technology sector to neutral and sees more attractive opportunities in Chinese and European tech stocks and AI applications.”

“Even though large U.S. tech companies continue to generate substantial profits, we remain more neutral,” the bank said. “We do expect earnings, but believe there are better opportunities in Chinese and European tech stocks and AI applications.”

The bank mentioned the turbulence in U.S. tech stocks and pointed out that the leadership in global equities is shifting.

Despite this mild adjustment, UBS maintains an “attractive” view on the overall asset class and notes signs that global economic growth is bottoming out.

Analysts believe structural trends still support the market, but they recommend a more selective approach in the AI sector.

According to UBS, “U.S. mega cloud service providers are expected to use almost all free cash flow to finance capital expenditures,” raising questions about future returns.

UBS forecasts a 12% earnings growth for the MSCI World Index this year and states that although valuations are high, “they do not seem unreasonable.”

The bank continues to emphasize diversification outside U.S. tech stocks and highlights opportunities in emerging markets, Japan, and Europe, as well as in global banking and industrial sectors.

“Emerging markets, Japan, and Europe are performing well in cyclical sectors, but we believe there is further upside,” they added. “From a sector perspective, we are optimistic about banking and industrials globally. In the U.S., we also favor healthcare and utilities, while we see strong upside potential for tech in Europe and China.”

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.