Tech Volatility Presents Buying Opportunity for Long-Term AI Investors, Says UBS
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The technology sector, particularly AI-related stocks, experienced a volatile start to the week, with the Nasdaq Composite falling on Monday before rebounding 1.5% on Tuesday. This volatility, attributed to potential shifts in Federal Reserve policy and geopolitical tensions, presents a buying opportunity for long-term investors, according to a note published by UBS.
UBS analysts acknowledge that October is historically a turbulent month for tech stocks. "The monthly realized volatility for the Nasdaq 100 over the past 40 years has been 26% in October, compared to an average of 22% in other months," the bank points out.
However, they remain optimistic about the sector's long-term prospects, citing strong AI fundamentals and an upcoming earnings season that is expected to reaffirm positive growth trajectories.
“We continue to expect increased volatility for technology stocks in the near term,” the note states. “However, we remain positive on the tech sector as well as the outlook for artificial intelligence (AI). Against this backdrop, we believe volatility should be utilized to build long-term AI exposure."
The Swiss bank highlights several factors contributing to this positive outlook, including:
Strong AI Spending: Major tech companies remain committed to significant investments in AI, with UBS analysis suggesting that capital expenditure intensity is still below historical peaks.
Robust Revenue Projections: UBS projects overall AI semiconductor industry revenues to reach USD 245 billion by the end of 2025, up from USD 58 billion in 2023.
Accelerating Technology Upgrades: The ongoing transition to smaller, more powerful AI chips is expected to drive significant performance improvements and fuel further investment in the sector.
UBS forecasts earnings growth of around 35% in 2024 and another 25% in 2025 for its AI stock selection. The firm recommends investors consider structured strategies or a buy-the-dip approach for quality AI stocks.
The note also points to opportunities in private markets, particularly in large language models, software applications, and data centers, for investors able to manage risks such as illiquidity.
The upcoming third-quarter earnings season, beginning this week, is expected to provide further clarity on the sector’s performance. Early signs appear promising, with Taiwan Semiconductor Manufacturing Company (TSMC) posting better-than-expected September revenue.