Tech stocks are back in the firing line, with the Nasdaq down more than 2% this week and AI favourites leading the slide. UBS thinks investors shouldn’t panic; the long-term AI story is still firmly intact.
Part of the wobble came after an MIT study suggested 95% of companies using generative AI haven’t seen tangible returns yet.
Add to that Sam Altman warning investors were getting “overexcited”, plus talk of Washington taking equity stakes in more chipmakers, and you’ve got the recipe for a bout of nerves.
But UBS argues the fundamentals tell a different story. Second-quarter tech earnings were strong, with most big names beating forecasts on sales and profits.
Cloud revenue at the three dominant platforms was up more than 25% year on year. Forward guidance has held up too – unusual in a reporting season that usually brings downgrades.
Investor sentiment, meanwhile, is less euphoric than the headlines suggest.
The latest AAII survey showed bullishness among retail investors has dropped below 30%, while institutional funds are the most underweight mega-cap tech in 16 years.
With the Federal Reserve expected to start cutting rates in September, UBS reckons there’s more support for risk assets to come.
The bank does flag short-term volatility, especially in cyclical parts of the sector.
But it still advises “balanced exposure across the AI value chain”, from infrastructure and semiconductors to applications, with laggards offering the best risk-reward.
In other words: a cooling-off period for the AI trade was inevitable after last year’s surge, but UBS thinks the earnings power behind Big Tech, combined with trillions in AI-related capex, means the rally is far from over.