UBS Downgrades US Tech, Prefers China and Europe with 12% Growth Outlook
UBS downgraded U.S. technology sectors to Neutral and highlighted better opportunities in Chinese and European tech stocks as well as the AI application layer. Analysts forecast 12% earnings growth for the MSCI AC World Index and warned U.S. hyperscalers’ capex-heavy free cash flow could curb returns.
1. UBS Downgrades US Tech to Neutral
UBS analysts downgraded U.S. technology sectors to a Neutral rating, citing turbulence in share performance among megacaps and a shift in global equity leadership away from the U.S. tech sector.
2. Preference for China, Europe, and AI Applications
The strategists highlighted more attractive opportunities in Chinese and European tech stocks, as well as in the AI application layer, noting that these regions may offer higher upside potential compared to U.S. peers.
3. Earnings Growth and Free Cash Flow Concerns
UBS projects 12% earnings growth for the MSCI AC World Index this year, but raised concerns that U.S. hyperscalers’ plans to allocate almost all free cash flow to capital expenditures could pressure future return on equity.
4. Diversification Recommendations for Investors
The bank maintained an overall Attractive view on global equities but recommended diversification beyond U.S. tech into emerging markets, Japan, Europe, global banks, industrials, health care, and utilities to capture cyclical recovery gains.