Don’t throw the tech baby out with the bathwater

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UBS House View – Weekly Global

Tech stocks came under pressure last week, led by a 5% one-day fall in Apple following negative news from one of the firm's suppliers. More broadly, the tech-heavy Nasdaq has slid 10% since its October peak, more than the 6% decline in the S&P 500. We maintain our neutral view on technology, as we believe that the world is approaching "peak smartphone." Enterprise spending remains strong, especially in areas like software, where we expect 12–15% earnings growth next year. And for the IT sector overall, 12-month-forward price-to-earnings ratios, which reflect the expected slowdown, have fallen to 16x from 19x. Despite the recent correction, the relative premium of the MSCI global tech sector to the wider market is still 15%, in line with the historical average and not yet compelling enough.