UBS says tech sell-off is a positioning reset, not the start of an AI downturn

 UBS told clients in a note on Monday that last week’s sell-off in technology stocks reflects investors adjusting their positions rather than the start of a lasting downturn in AI investment.

“We believe the recent technology sell-off represents a positioning reset rather than the start of a structural downturn in the AI investment cycle,” UBS’s Chief Investment Office wrote.

Asian stocks rebounded on Monday, with Japan’s Nikkei 225 up 3.5% and Taiwan’s benchmark rallying more than 6%, after a recovery on Wall Street on Friday and a drop in oil prices on hopes for progress in U.S.-Iran talks.

However, UBS said the rebound does not remove the risks from concentrated positioning and high expectations. 

It suggested that investors whose tech holdings have grown too large use rallies to rebalance, lock in gains and diversify.

For those who expect stocks to keep rising but want protection against losses, UBS highlighted capital preservation strategies. 

The bank explained that these typically combine a bond, designed to return the original investment at maturity, with options that capture some of the market’s upside.

Furthermore, UBS highlighted important trade-offs. Protection usually applies only at maturity, gains may be capped, investors forgo dividends, and repayment depends on the issuer’s creditworthiness.

“So, we expect further gains for broad equity markets over the next six to 12 months, supported by resilient economic activity and broadening earnings growth,” UBS said. “We recommend maintaining diversified core equity exposure while reducing concentrated single-stock positions.”