Investors trying to navigate tech volatility should focus on the 'ABCs' - AI, big data, and cybersecurity, says UBS

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Tech volatility should prompt investors to focus on the ABCs of the sector - AI, big data and cybersecurity stocks, says UBS.
Those themes within tech offer high-potential, long-term growth, said the global wealth manager.
The Nasdaq Composite has dropped into a correction, down more than 10% from its all-time high.

Investors should adopt a "thematic approach" to investing in the technology sector in the face of sharp volatility that's left the Nasdaq Composite in a correction as shares of behemoths such as Apple and Microsoft have been battered, UBS Global Wealth Management advised clients on Friday.

Investors are asking whether it's time to buy into the group in the face of the Nasdaq Composite's tumble, said UBS. The index through Thursday has lost 12.7% from its all-time intraday high of 16,212.23 on November 22. A correction is considered a loss of 10% or more from a recent high. Tech stocks have been stung in part from a surge in Treasury yields on expectations of a fast pace of interest-rate hikes by the Federal Reserve this year.

The Nasdaq sold off during Friday's session and among big names on the index, Apple this year has dropped about 8% and Microsoft has declined by roughly 11%. The moves follow big gains in 2021 when Apple charged up about 35% and Microsoft soared 52%.

"Instead of relying on another period of mega-cap outperformance, investors should take a thematic approach, including foundational technologies such as AI, big data, and cybersecurity—the ABCs of tech," Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.

Investors would serve themselves well to seek the "high potential long-term growth" from AI, big data, and cybersecurity stocks and to rebalance their portfolios to avoid overexposure to mega-caps, he said.

Haefele noted the PHLX Semiconductor Sector index dropped by more than 10% this week despite "mounting tailwinds" from the potential passage of a $52 billion bill in Congress aimed at increasing chip supplies, Intel's plan to spend at least $20 billion to build a manufacturing facility in Ohio, and "strong" next-gen lithography sales for ASML.

"Alongside semi equipment makers, we like select chip foundries, with the largest players poised to enjoy a structural uplift in demand, widening margins, and low double-digit revenue gains over the next few years," he said.

UBS also highlighted the potential for growth in the electric vehicle market with the expected entrance of more companies. Sony executives told Reuters it will likely add new technology partners to its EV project, and UBS said Apple is widely expected to enter the EV market in the near future.

The wealth management group sees smart mobility growing into a $450 billion market by 2025, or three to four times its current size.

"The path to smart mobility will be enabled by a raft of tech innovators, including advanced chip and sensor makers, camera leaders, AI and cloud providers, and next-gen EV battery makers. We like select names across the global EV supply chain, as well as select global automakers with EV exposure," wrote Haefele.

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