Tech stocks have recently experienced significant fluctuations, with a notable sell-off on Wall Street sparked by recession fears, leading to a $279 billion loss for Nvidia (NVDA) in just one day. Despite this volatility, UBS (UBS) encourages investors to view this as an opportunity to strategically adjust their technology portfolios, either by making selective acquisitions or divesting certain assets.
Strategic Portfolio Adjustments
Mark Haefele, the Chief Investment Officer at UBS Global Wealth Management, advises investors to evaluate their portfolios’ exposure to technology and AI. For those with lower AI allocations, he suggests increasing exposure through structured strategies to manage potential volatility. Conversely, those with higher allocations might consider capital preservation strategies to hedge against further market turbulence.
Semiconductor Sector Insights
Haefele notes that while semiconductor capital expenditure remains promising, some areas are more appealing than others. Despite Nvidia’s recent earnings exceeding consensus estimates, they fell short of higher expectations, sending mixed signals to investors (link).
UBS suggests focusing on AI logic chips within the semiconductor space, where valuations have become more reasonable. Quality foundry stocks are also attractive, with expectations of sustained earnings growth.
Opportunities Beyond Semiconductors
Beyond semiconductors, UBS sees potential in quality large-cap technology companies, especially those showing returns from AI investments. Companies like Microsoft (MSFT) and Meta (META) are leading AI monetization efforts, with Microsoft anticipating faster cloud revenue growth and Meta aligning investments with significant monetization opportunities.
Valuation and Market Sentiment
Valuations for mega-cap tech stocks have become more attractive, trading at about 27 times next year’s earnings, approximately 15% below recent peaks. UBS prefers quality tech companies with strong secular growth and resilient earnings, supported by solid fundamentals and robust free cash flow.
Smartphone Sector Outlook
In the smartphone sector, supply chains might benefit from the upcoming replacement cycle. Apple (AAPL) has shown resilience, with shares holding up well ahead of the seasonal iPhone launch. UBS notes that supply chain checks suggest a launch preparation similar to last year, with a potential 5% to 10% increase in orders if demand is strong.
UBS favors companies within the smartphone supply chain with pricing power and industry leadership, while remaining cautious on lower-quality hardware firms that could face margin pressures.
Despite the near-term volatility, UBS remains confident in the long-term investment case for AI.
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