Analysts at UBS downgraded U.S. information technology stocks on Tuesday, even following a market bounce. The Swiss financial institution shifted its view on the sector from attractive to neutral.
UBS highlighted three primary justifications for the downgrade, according to CNBC.
Mark Hawtin from Liontrust Asset Management echoed these concerns on CNBC.
“The amount of revenue being generated by AI at the moment doesn’t stack up relative to the amount being spent,” Hawtin said.
He further noted that the shift toward capital-heavy business models increases risk:
“They’re becoming very capital-intensive. We don’t know what the outcome of that capital expenditure is going to be, and therefore, we should pay less for them.”
While UBS is not entirely bearish on innovation, it suggested that investors look for AI opportunities outside the IT sector.
“Investors should also review concentrated exposures to individual software firms, and particularly those ‘pure play’ companies that do not have diversified business models,” UBS wrote, per CNBC.
Instead of sticking solely with tech, the bank advises moving capital into sectors like healthcare, utilities and banking.
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