The rebound in global tech stocks has more room to run, according to analysts at UBS who see accelerating AI investment and sustained earnings growth as key drivers for the sector.
Despite ongoing geopolitical risks and supply chain concerns, UBS argues that the risk-reward profile for quality tech names remains attractive.
“With global tech’s valuation still reasonable, we think the risk-reward remains attractive and believe investors should continue to position for an ongoing recovery in quality AI names globally,” they wrote in a note.
The analysts highlighted strong demand indicators in the AI sector, pointing to Taiwan Semiconductor Manufacturing Co’s (TSMC's) latest financial report.
“[TSMC] reported April revenue that is 48% higher than a year ago, while its revenue for the first four months of this year has grown 43.5% from the same period in 2024,” analysts wrote.
“With the chipmaker keeping its forecast for AI-related sales growth to double this year and maintaining its capital spending projection, we believe this points to strong underlying AI demand.”
Analysts also see China’s push for AI self-sufficiency as another tailwind.
“Beijing has long made public its goal of achieving technology self-sufficiency and having an independent AI ecosystem has become more critical in light of the tech export controls imposed by the US,” they wrote.
“We estimate China’s AI compute self-sufficiency could potentially improve from just over 33% in 2024 to 90% by 2029, translating to a localization AI compute opportunity of US$81 billion, from US$6 billion.
The analysts also expected global capital expenditure on AI to increase, projecting 60% growth to US$360 billion this year and by another 33% in 2026 to US$480 billion.
Earnings strength eyed
Tech earnings are set to remain strong as long as trade risks remain contained, UBS believes.
“We think tech stocks should continue to recover, supported by strong earnings growth of 12% or higher if tariff headlines continue to improve,” they wrote.
Despite potential inflationary effects from recently imposed US tariffs, UBS believes the 90-day trade truce with China should help contain broader market risks in the near term.
“The US and China’s 90-day pause in higher retaliatory tariffs should help to limit the rise in inflation by reducing import costs and avoiding damage to supply chains,” they wrote.
Looking at tech sector investing, the analysts favor diversified exposure across leading internet and software companies and names along the AI semiconductor supply chain globally.
“The strong spending to advance the technology should continue to underpin the robust secular AI trend in the coming years,” they wrote.