UBS analysts remain bullish on global technology stocks, highlighting strong first-quarter earnings and increased investment in artificial intelligence (AI) as key drivers.
The bank notes that big tech companies like Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Meta (NASDAQ:META), and Amazon (NASDAQ:AMZN) all reported solid results, buoyed by increased capital expenditure (capex) on AI infrastructure. UBS estimates a combined $205 billion will be spent on AI this year, a 40% jump from 2023, potentially boosting AI computing revenue by $30-40 billion by 2025.
Furthermore, accelerating cloud growth suggests increased AI adoption, with Microsoft, Alphabet, and Amazon's cloud platforms experiencing a combined year-over-year growth rate approaching 24%. This, coupled with strong free cash flow generation by big tech companies (expected to reach $560 billion by 2025), underscores their defensive capabilities.
"So, with an estimated 20% growth in earnings this year, and a 16% increase in 2025, we continue to believe the risk-reward for global tech is attractive with current valuations," said UBS.
They maintained their preference for semiconductors, software, and big tech to ride the AI wave, but also see opportunities in Asian beneficiaries for those with excessive exposure.