UBS Global Research downgraded its rating of what it calls the “Big Six” tech stocks—Apple, Amazon, Google-parent Alphabet, Meta, Microsoft and Nvidia—in a note on Monday.
“Our downgrade of the Big 6—from Overweight to Neutral—is not predicated on extended valuations, or doubts about AI,” wrote Jonathan Golub, chief U.S. equity strategist for UBS Investment Bank, in the note. “Rather, it is an acknowledgement of the difficult comps and cyclical forces weighing on these stocks.”
Golub warned that the “surging earnings momentum” that sent the stock of these tech giants surging over the last year is “collapsing.”
The bank’s research arm expects the EPS growth of these six stocks to decline to 16% in the first quarter of 2025, from 42% in the same period this year.
A return to normal
In the note from Monday, UBS explained that the big six’s earning cycles were thrown off by the pandemic. First, lockdown-driven demand for PCs, online shopping, and gaming set off earnings growth. This was followed by an earnings decline following the reopening of the economy.
A reduction in costs and easy comparisons boosted these companies’ profit, peaking the fourth quarter of 2023. Now, we’re going to see a period of decline as earnings are expected to normalize.
“The description above is not meant to ignore the impact of AI, cloud computing or bitcoin mining on Tech earnings,” Golub wrote. “It simply refocuses the conversation on the cyclical nature of this profit cycle, and its pandemic origins.”
Golub wrote that other tech and non-tech companies were not as impacted by the COVID-driven boom. The UBS anticipates that the EPS of non-tech corporations will outpace the Big Six over the next 12 months.