The bank highlights compressed semiconductor valuations and strong cloud growth as reasons to buy into the sector despite recent declines.
UBS is capitalizing on the recent tech pullback to reinforce its bullish outlook on artificial intelligence, viewing the sell-off as a valuation reset rather than a demand issue. Semiconductor stocks have seen valuations drop to around 22 times forward earnings, below their post-ChatGPT average, improving risk-reward dynamics despite fragile sentiment driven by rising Treasury yields and AI financing concerns.
The bank points to 24% week-over-week growth in token consumption on OpenRouter data, with token volume surging over 30-fold in the past year, as evidence that AI demand is outpacing efficiency-driven price declines. Hyperscalers reported 48% year-over-year cloud revenue growth in the second quarter, exceeding consensus expectations.
UBS forecasts AI capital expenditures to reach $1.2 trillion by 2027, up 33% from an estimated $900 billion this year. The bank recommends diversifying into defensive tech sectors like payment networks and data center REITs amid near-term volatility while maintaining medium-term conviction.