UBS expects more gains for tech stocks after a strong first half of 2025.
The Nasdaq closed the period at a record high, up more than 33% from its early April low. Despite apparently stretched valuations, the Swiss bank sees further upside thanks to AI investment driving long-term growth.
UBS noted margin pressures in the short term, as cashflows are poured into big capital projects, R&D and expensive AI expertise.
The bank cites a rise in capex intensity for major tech firms to 21% this year, from around 11.5% in 2020, and it forecasts that the spend will stay around this level (proportionately) through 2030.
But, at the same time, automation is expected to reduce operating costs over time too.
“While we expect a dip in big tech’s margins this year and next, we believe they should recover in the years to come as AI automation drives other operating costs lower in the longer term,” the Swiss bank’s analysts said.
UBS also spotlighted the pace of AI adoption, citing a recent US Census Bureau survey, which claimed AI adoption rates are now between 25% and 30%.
And, the UBS analyst team pointed to Oracle's US$30 billion cloud deal with an unnamed client, announced earlier this week, as an example of how the big software and internet infrastructure firms are now monetizing the AI adoption trend. In other words, the sellers of picks ‘n’ shovels for the so-called AI revolution are now starting to see rising demand.
At the same time, UBS reckons lower interest rates and a weaker US dollar are also expected to help.
UBS forecasts 100 basis points of Fed rate cuts over the next year. With more than half of US tech revenue coming from abroad, the firm sees this environment as supportive for the sector.