The artificial intelligence boom, which began with the launch of ChatGPT in late 2022, has nearly doubled the Nasdaq Composite Index.
But as the rally enters its fourth year, UBS analysts say investors need to tread more carefully.
“Looking ahead to potentially the fourth year of the AI rally, we provide a road map for investors highlighting the key catalysts and risks to monitor over the next 12 months,” UBS wrote in a note.
The firm added that with valuations now rich, “the AI theme is more matured after the strong gains over the past three years, so investors need to manage their exposure.”
UBS forecasts 15 percent earnings-per-share growth for global technology in 2025 and 12.5 percent in 2026, supporting expectations for double-digit returns over the next two years.
Still, risks remain. The bank cited “macro issues like tariffs, geopolitics, and rate cuts; industry developments around model upgrades; monetization updates; capex guidance; and the usual quarterly results and idiosyncratic events around product cycles and product transition risks.”
To balance risk and reward, UBS recommends diversification across semiconductors, software, and internet companies.
Within its “AI” portfolio, about 25 to 30 percent is allocated to high AI sensitivity stocks, 50 percent to medium sensitivity, and 20 to 25 percent to low sensitivity.
“We see the best risk-reward currently in companies with medium AI sensitivity, in terms of both EPS growth and valuation,” UBS said. These firms, it noted, typically benefit from multiple technology trends and act as an “all-weather” group.
The bank also advised investors to watch seasonal patterns in tech stock performance, which could shape positioning in the coming year.
Looking ahead, UBS stated that in Q4, catalysts and risks will include earnings results and progress on geopolitics, then into Q126, they highlight 2026 capex and other guidance as factors to watch.
For Q226, the bank points to factors such as temporary AI chip product transition risks, while in Q326, they expect “new products to drive strong demand.”
Source :
https://www.investing.com/news/stock-market-news/whats-next-for-the-ai-rally-in-the-4th-year-4217035
