As major technology stocks are about to release financial reports this week, UBS released a report on Monday saying that the six major technology stocks$Alphabet-A (GOOGL.US)$,$Apple (AAPL.US)$,$Amazon (AMZN.US)$,$Meta Platforms (META.US)$,$Microsoft (MSFT.US)$und$NVIDIA (NVDA.US)$Momentum is being lost, and past earnings momentum is cooling down, downgrading the six companies' shares from “overallocated” to “neutral.” Goldman Sachs analysts also warned that if technology stocks want to maintain their gains this week, the performance threshold they need to reach this earnings season is very high, and it will not be easy to reach.

UBS analysts said in the report that the downgrade was due to “the profit performance of these companies and other comparable companies and pressure from cyclical factors” rather than “based on excessive valuations or doubts about artificial intelligence.”

Analysts said,

“After these companies saw a surge in profit growth, the profit momentum clearly turned negative.”

The sell-off in technology stocks last week caused the Nasdaq 100 index to record its biggest weekly decline in 17 months, causing the NASDAQ index to fall for the fourth week in a row, the longest since December 2022. On Friday, Nvidia, which is seen as the leader in artificial intelligence, plummeted 10%, and its market capitalization evaporated by $21.2 billion.

On Monday, the Nasdaq 100 index rose 1.56% intraday, and Nvidia rebounded nearly 5%, temporarily easing the decline.

Although investors attributed the tech giants' previous gains in part to the impact of artificial intelligence, UBS said the surging profit momentum was driven by “asynchronous earnings cycles” (asynchronous earnings cycles) triggered by the COVID-19 pandemic.

UBS pointed out that other technology stocks did not join the rise in US stocks after the pandemic, but now consensus predicts that profits from these stocks are expected to accelerate again. Earnings per share growth for the top six tech stocks is expected to slow from 68% in the fourth quarter to 42% in the first quarter, according to UBS calculations. At the end of the year, growth in other tech stocks will eventually surpass that of big tech stocks.

Analysts said:

“The slowdown in large-cap technology stocks and the acceleration of mid-cap technology stocks should lead to a reversal of stock market leadership.”

Analysts at Deutsche Bank said that investors remain cautious in the technology sector as a whole, reducing investment in large growth stocks and technology stocks. They will keep a close eye on Meta's report on Wednesday, as well as Microsoft's and Google parent company Alphabet's report on Thursday.

Although the reversal of the trend from technology stocks may disrupt in the short term, UBS still has a constructive view on US stocks and maintains its target of 5,400 points for the S&P 500 index at the end of the year, pointing out that this is still supported by broad positive fundamentals and a strong economy.

In addition, Goldman Sachs analysts also warned that if technology stocks want to maintain their gains this week, the performance threshold they need to reach this earnings season is very high, and it will not be easy to reach them.

This week is the big week of earnings season, and the market capitalization of companies that publish financial reports accounts for 37% of US stocks. Goldman Sachs previously surveyed customers and asked if their stock exposure had been reduced enough to withstand downward market pressure. Customers generally answered “no.” Analysts said the situation is still unclear this week, and it will be more clear next week.

Analysts pointed out that this week was the peak of the mismatch between supply and demand. “Once we get through this week (Friday), I think the position of US stocks will be more constructive, and we will have already absorbed a lot of supply by then. We'll be in a better position to achieve a higher rebound.”

Editor/Somer