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Big 6 tech stocks downgraded by UBS on 'collapsing' earnings

UBS Chief Investment US Equity Strategist Jonathan Golub downgraded the "Big Six" tech stocks - Amazon (AMZN), Apple (AAPL), Alphabet (GOOG, GOOGL), Nvidia (NVDA), Meta (META), Microsoft (MSFT) — from Overweight to Neutral citing "difficult comps and cyclical forces weighing on these stocks." In addition, Golub claims that the monumental earnings that catapulted these companies are "collapsing."

Yahoo Finance Reporter Josh Schafer joins Market Domination to break down UBS' call on the majority of the Magnificent Seven tech leaders and what Golub forecasts for the tech sector in his note to investors.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video Transcript



JOSH LIPTON: Time now for our call of the day. UBS Investment Bank's Chief US Equity Strategist Jonathan Golub has downgraded the big 6 tech stocks. Slashing his ratings on Apple, Alphabet, Microsoft, Amazon, Meta, and NVIDIA to neutral from overweight. Golub noting he sees the rest of the tech sector and other areas of the market as more opportunistic than the stock market's 2023 leaders. Yahoo Finance's very own Josh Schafer joins us now with more. Josh.

JOSH SCHAFER: Yeah, Josh, so one thing to make clear about this as we get into it is Jon Golub is a broad equity strategist. So he's saying the big 6 tech stocks, basically referring to them like a sector like we would talk about energy, or we would talk about tech, or we would talk about industrials. So he had that in an outperform rating. And he moved it to neutral essentially getting to what you just alluded at there, Josh, which is maybe there's just less upside in these names.

And he makes a case that's been pretty common on Wall Street. Realistically, when we think about what he's saying here, he's really just talking about a broadening out of the stock market rally. And the fact that the other 494 companies, in this case, because he's using 6 companies instead of 7 instead of 5, essentially saying that earnings are going to grow more for the other 494 companies than they're going to grow for the big 6 tech stocks that he highlights. And really what we're talking about from that sense, too, is earnings growth.

So what you're looking at here in purple is what we're expecting for the first quarter. You can see 42% for that big 6. But then it comes down. So you're moving down. And the other two sectors that you have on your right there, you have the rest of tech, and then you also have the S&P 500x tech. You're moving up.

Normally, when you're buying a stock, you want to see growth metrics going up, not down. So it's really just quarter over quarter comparisons and considering that maybe this massive seen in tech, this huge earnings growth is going to slow down. Where am I going to see earnings growth at a faster clip? Probably outside of that part of the market.

JOSH LIPTON: Were there any other variables he was considering like valuation, or was he saying the AI boom is going to go bust or no? It was earnings.

JOSH SCHAFER: So that's the interesting-- he's not calling that the AI boom is going to go bust or something like that. He specifically highlights in here that it really isn't a call on AI or really valuations. It's really just more so that rotation. And he's sort of looking for opportunity within that rotation and where else do you go.

- Yeah, and I feel like we've been hearing from more and more analysts and strategists about this broadening out of the market. I mean, I do have that question mark whether or not we can continue to see this AI installation with a lot of these big tech names, especially if the Fed does keep rates higher for longer. I do think this push and pull means guidance is extra important. This earnings season.

And I think you already saw that with a company like Netflix. They reported Q2 revenue that disappointed. And that led to a drop in the stock. There were other variables as well. But guidance, I think, is going to be a big thing for investors.

JOSH SCHAFER: And it gets to just the comps conversation, too, and how we get to year over year earnings growth. And it's comparing it to the growth that we saw the year prior. He points out in this note, when you think about it for tech. 2022 wasn't a good year. Tech companies didn't have good earnings growth in 2022. The stocks did terrible.

So in '23, they flipped the script. But now you have massive comps. And the further you get into this year, you're looking at just a significant amount of earnings that you then have to compare yourself to. And from a growth perspective, that gets harder for these companies. I mean, we have Meta coming up later this week. They're supposed to grow earnings by almost 100%. It's a pretty high bar.

JOSH LIPTON: Yeah, and Josh, just quickly, I mean, so it doesn't he put out this note. But it doesn't sound like he's still constructive on the broader market it sounds like.

JOSH SCHAFER: 5,400 call on the S&P 500.

JOSH LIPTON: He didn't change that target.

JOSH SCHAFER: He did not. And he said specifically because the reason he thinks those other stocks are going to work is the economic backdrop. He thinks that story is still well intact. The economy is going to do well. And that's when your 494 start to pick up. And hopefully, you see earnings pick up there. And then that's where you get that rotation.