Pullback in AI beneficiaries is ‘a buying opportunity’ – UBS

© Reuters. Pullback in AI beneficiaries is ‘a buying opportunity’ – UBS

UBS strategists said in a Monday note they think the recent pullback in tech stocks could be a buying opportunity for investors.

In early March, US stock markets soared to record highs, fueled by optimism around AI commercialization potential.

However, tech stocks have since retreated. As of March 15th, nearly all companies in the Philadelphia Semiconductor Index (SOX) and the S&P 500 Semiconductor & Semiconductor Equipment Index saw declines, with both indexes dropping over 6% in just six trading sessions as investors revised their expectations for the US economy.

However, UBS strategists do not see the pullback as a long-term concern.

“We believe price corrections in major AI beneficiaries could present investors with a buying opportunity since we expect AI companies to continue to benefit from infrastructure development and transparent corporate spending intentions,” said UBS strategists.

“We think generative AI will prove to be the growth theme of the decade. With estimated revenue growth for the AI industry around 70% each year until 2027, we forecast strong earnings growth and higher equity prices in the coming years for the next AI leaders.”

Therefore, UBS advises investors to diversify their technology holdings beyond the so-called Magnificent 7.

The recent downturn in tech shares, possibly due to concerns over market overextension and concentrated portfolios, presents a chance to spread investments.

Opportunities for diversification lie with the forthcoming AI frontrunners, including companies that make custom AI chips, companies involved in AI edge computing in Asia, and key players in the semiconductor capital equipment segment, UBS highlighted.