UBS downgrades U.S. tech to neutral, prefers China and Europe

Investing.com -- UBS analysts said global equities have continued to rise this year, but performance has become increasingly uneven, with cyclical regions and sectors outpacing U.S. technology stocks.

In a note, Fabian Deriaz, strategist at UBS, and Ulrike Hoffmann-Burchardi, chief investment officer for the Americas and global head of equities at UBS, said their “confidence in a cyclical recovery is intact,” supported by easing tariff pressures, expected Federal Reserve rate cuts, and more favourable fiscal policy.

However, UBS now “downgrades US tech sectors to Neutral and sees more attractive opportunities in Chinese and European tech stocks, as well as in the AI application layer.”

"Even if US megacaps continue to generate substantial profits, we still take a more neutral stance," stated the bank. "We do expect gains but believe there are better opportunities in Chinese and European tech stocks as well as in the AI application layer."

The bank cited turbulence in U.S. technology shares and noted that leadership within global equities is shifting.

Despite this moderation, UBS maintained its Attractive view on the overall asset class and pointed to signs that global economic growth is bottoming out.

The analysts believe structural trends remain supportive, but they advised a more selective approach in artificial intelligence.

According to UBS, “US hyperscalers [are expected] to use almost all their free cash flow to finance capex,” raising questions about future returns.

UBS projected 12% earnings growth for the MSCI AC World Index this year and stated that valuations, while elevated, “do not look unreasonable.”

The bank continued to emphasise diversification beyond U.S. tech and highlighted opportunities in emerging markets, Japan, and Europe, alongside global banks and industrials.

"Cyclical markets such as emerging markets, Japan, and Europe have performed well, but we see further gains ahead," they added. "Sector-wise, we favor banks and industrials globally. In the US, we also like health care and utilities, while we believe that tech sectors still offer robust upside potential in both Europe and China."

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