Big Tech firms are likely coming to the end of a trend in which they outperform market consensus, analysts believe.
UBS argued the market is “getting late into the tech outperformance innings with tech EPS growth peaking versus non-tech”.
Earnings per share outperformance in the sector is expected to drop from an average of a 45% gap in the final quarter of 2023 to just 3% in the fourth quarter of 2024.
The Swiss bank notes net 'Buy' recommendations by analysts across the software industry have fallen to “abnormally low” levels.
Nevertheless, UBS believes this is the only warning signal facing the industry, with companies in the sector not overbought, valuations at acceptable levels, performance in line with earnings, small Chinese exposure, and solid balance sheets.
Analysts also point out that the tech sector has the best upgrades of any industry and the best quality fundamentals on their “scorecards”.
UBS said: “We continue to have concerns over Tesla and Apple (where earnings have materially lagged performance) and prefer Microsoft and Meta.
Nvidia's price-to-earnings (P/E) ratio may appear reasonable at 27.1X based on earnings estimates for January 2026, analysts noted; however, its enterprise value-to-sales (EV/Sales) ratio stands at 15.5X based on projected sales for January 2028, indicating a relatively expensive valuation when considering revenue figures.