UBS has downgraded U.S. technology sectors to neutral from overweight, citing diminishing returns in American tech stocks as global market leadership shifts. The bank's strategists, Fabian Deriaz and Ulrike Hoffmann-Burchardi, now see more attractive opportunities in Chinese and European tech stocks, particularly in the AI application layer.

While UBS maintains confidence in a cyclical recovery supported by easing tariff pressures and expected Federal Reserve rate cuts, the bank believes U.S. megacaps face limited upside despite substantial profits. The analysts project 12% earnings growth for the MSCI AC World Index this year but note that valuations, while elevated, remain reasonable. They emphasize that U.S. hyperscalers are expected to use nearly all their free cash flow for capital expenditures, raising questions about future returns.

The bank continues to favor cyclical markets including emerging markets, Japan, and Europe, with particular interest in banks and industrials globally. In the U.S., UBS likes healthcare and utilities, while maintaining that tech sectors still offer robust upside potential in both Europe and China. This strategic shift reflects UBS's view that global economic growth is bottoming out and that diversification beyond U.S. tech is increasingly important for investors.