The recent selloff in the tech sector presents a strategic opportunity for investors to build exposure to quality technology stocks, according to UBS analysts.
Despite market volatility, the fundamentals of the tech sector remain robust, offering significant growth potential in the coming quarters, said the bank.
UBS notes that while the S&P 500 and Nasdaq indices closed lower, driven by concerns over yen carry trade liquidation and tech valuations, the underlying fundamentals of the tech sector continue to be strong.
"Global tech [is] tracking to report earnings growth of around 20-25% year over year in the second quarter," UBS stated, adding that this normalization should still support "sustained 15-20% earnings growth over the next six quarters."
One key factor said to be bolstering the tech sector is the resilience of AI spending.
UBS highlights that "2024 capex guidance for big tech rising to USD 211bn after second-quarter results," reflecting continued investment in AI capabilities.
Despite the recent volatility, tech valuations have reset to more attractive levels, with global tech now trading at "around 22x 2025 EPS."
The bank says the swift and broad selloff in tech stocks, driven by technical factors such as the unwinding of crowded trades and illiquid market conditions, mirrors past periods of tech outperformance.
UBS draws parallels to the third-quarter tech correction in 2011, which was followed by a decade of strong tech gains.
UBS recommends that investors consider building balanced exposure in global tech, focusing on companies with strong balance sheets, consistent earnings growth, and exposure to structural growth drivers like AI.
They suggest a modest bias towards internet and semiconductor names, along with exploring opportunities in China's tech giants for additional defensive exposure.