UBS Downgrades Mega-Cap Tech Stocks

Next, let’s examine analysts’ overall outlook on tech stocks. Today, UBS downgraded the ratings of the ‘Big Six’ tech giants, stating that they are losing momentum and their earnings growth is about to cool. Meanwhile, Bank of America and Goldman Sachs noted that the bar for further gains is now very high. So what lies behind these views—is this a short-term phenomenon or a more long-term perspective? Let’s take a closer look. In its report today, UBS stated that the six tech giants—Apple, Microsoft, Google, Amazon, Meta, and NVIDIA—are losing steam, and thus downgraded their stock ratings from 'overweight' to 'neutral'. The primary reason cited is last year’s exceptionally strong price appreciation: such outsized gains pose a headwind for earnings momentum this year. Yet analysts emphasized that this downgrade stems largely from a cyclical perspective—namely, that cyclical forces will weigh on share prices—not from skepticism toward artificial intelligence, nor from concerns about excessive valuations. So what exactly is driving this view? The report explains that while most investors attribute the giants’ rally to AI, UBS believes their earnings growth has been driven not only by AI but also by a pandemic-induced, asynchronous earnings cycle across the broader tech sector. In essence, the pandemic caused the earnings cycles of mega-cap tech firms to fall out of sync with those of other tech companies. Consequently, UBS forecasts that the six giants’ earnings growth rate will decline from 68% in Q4 last year to 42% in Q1 this year. By year-end, however, earnings growth among other tech stocks is expected to surpass that of the mega-caps. As a result, mid-cap tech stocks will lead the broader tech sector going forward, triggering a market rotation. Aggie did not find further elaboration from UBS on this cyclical thesis. But based solely on the above conclusion, I am not fully convinced—mid- and small-cap tech firms also posted robust growth during the pandemic, exemplified by companies like Zoom and Robinhood. Moreover, Amazon and Meta likewise benefited significantly during the pandemic; it remains unclear how UBS arrived at the conclusion of an 'asynchronous earnings cycle'. That said, I do agree that the hurdle for continued growth is now exceptionally high—and the most critical factor to watch is whether AI-driven growth can sustain its blistering pace.

US Market Movers | NVIDIA (NVDA.US) Drops Over 5%; UBS and Truist Lower Price Targets

Guronghui, May 24 — NVIDIA (NVDA.US) fell over 5%, trading at $159.89. UBS lowered its price target for NVIDIA from $350 to $280; Truist reduced its price target from $298 to $285.

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