UBS Sees AI Driving Tech Sector Growth Despite Short-Term Volatility

UBS Wealth Management's Investment Office has recently highlighted that despite the anticipated short-term volatility due to macroeconomic uncertainties, the robust long-term trend of artificial intelligence (AI) will continue to drive the mid to long-term rise of the technology sector. The office suggests a balanced and diversified investment strategy across the AI value chain, emphasizing the potential for sustained growth in the technology sector, particularly in the realm of AI, which is expected to remain a key driver of innovation and economic growth.

The office's analysis underscores the importance of strategic investment in AI-related technologies, highlighting the need for a diversified approach to mitigate risks associated with market volatility. This outlook reflects a broader trend in the financial community, where AI is increasingly seen as a transformative force with significant investment potential. The office's recommendation to balance and diversify investments across the AI value chain suggests a cautious yet optimistic approach to navigating the current economic landscape. This strategy aims to capitalize on the long-term growth prospects of AI while managing the risks associated with short-term market fluctuations.

The office's insights provide valuable guidance for investors looking to position themselves in the rapidly evolving technology sector, particularly in the context of AI's growing influence on various industries. The office predicts that AI-driven efficiency improvements will support a rise in profit margins in the future. While it is expected that the profit margins of tech giants will decline this year and next, the long-term reduction in operational costs due to AI automation is anticipated to drive an increase in profit margins over the coming years.

Additionally, as the U.S. economy slows, the Federal Reserve is expected to resume easing policies later this year. The U.S. central bank is projected to cut interest rates by 100 basis points over the next 12 months, which could lead to a sustained weakening of the U.S. dollar. This economic backdrop is likely to benefit technology stocks, as more than 50% of the revenue of U.S. tech companies comes from overseas sales. Lower interest rates make future earnings more valuable when discounted to their present value, with global tech stock earnings expected to grow by 12% this year.