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UBS Investment Bank Chief US equity strategist Downgrades Major Tech Stocks

UBS Investment Bank Chief US equity strategist Jonathan Golub recently downgraded six of the so-called “Magnificent 7” stocks — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Nvidia (NVDA) — from Overweight to Neutral in a new research note on Monday.

This decision comes as the Magnificent 7, which also includes Tesla (TSLA), experienced its largest weekly market cap loss in history. All seven of these tech giants are currently trading below their recent highs, with Nvidia having a particularly rough day with a 10% single day drawdown, its worst performance since March 2020.

Golub, known for rating sectors within the S&P 500 (^GSPC) rather than individual stocks, still holds an Overweight rating on the technology sector excluding the six stocks mentioned in his note. He suggests that while these large companies have seen substantial earnings growth over the past year, the tides may be turning in favor of other areas that could outperform the dominant stocks in the S&P 500.

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“Investors often attribute the success of mega cap stocks to speculative tendencies and the influence of AI,” Golub wrote. “However, according to our analysis, the surge in earnings momentum has been the driving force behind this upward trend. Unfortunately, this momentum is now on the decline.”

The latest data reveals that consensus estimates predict a year-over-year earnings growth of nearly 20% for the mentioned tech giants in the fourth quarter, which marks a slowdown from their previous growth rates. In contrast, the remaining 495 companies are expected to see a 17% growth compared to the prior year, indicating a significant improvement in their current growth trajectory.

“Our decision to downgrade the Big 6 stocks from Overweight to Neutral does not stem from concerns about inflated valuations or AI’s capabilities,” Golub added. “Rather, it is a recognition of the challenging comparisons and cyclical pressures facing these stocks. These factors are not as prevalent in other TECH+ companies or the broader market.”

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