Leverage October’s Volatile Tech Market to Capitalize on AI Dips: UBS

Tech stocks have experienced significant fluctuations since October, and investors are encouraged to capitalize on the volatility in this historically turbulent month by investing in artificial intelligence (AI) stocks, according to a recent note from UBS.

UBS strategists highlighted that the ongoing geopolitical uncertainties and risks surrounding export controls are likely to contribute to further volatility in the tech sector in the near future. However, they believe that this volatility presents an opportunity to build long-term positions in AI stocks.

According to UBS, October has already been a challenging month for the tech industry, but the level of volatility observed is not uncommon. Over the past 40 years, the Nasdaq 100 has showcased a monthly realized volatility of 26%, compared to an average of 22% during other months.

The current market turbulence, UBS strategists noted, allows investors to gain exposure to AI despite the challenges. They pointed out that major AI customers are making significant spending commitments that are expected to last through 2025. Revenues in the AI semiconductor industry are projected to rise from $58 billion in 2023 to $168 billion by the end of this year, and further grow to $245 billion by the end of 2025, according to their estimates.

UBS’s recommendation to invest in AI stocks comes just before the third-quarter earnings reports for several companies in the sector. The upcoming earnings season may serve as a catalyst for the markets, with UBS anticipating that tech and AI companies will likely “beat and raise” expectations for the September quarter.