On July 30, Caixin reported that UBS said in its latest report on Monday that selling technology stocks this month is a good opportunity for long-term investors to buy on dips.

Recently, investors have shifted from large-cap stocks to small-cap stocks, exacerbating the sell-off, leading some to question whether the trend of large-cap tech stocks outperforming the market for years has come to an end. But according to UBS, the recent decline in technology stocks is only temporary.

"Market volatility may continue as some large technology companies are set to report earnings this week. But we believe that technology stocks should find support over the next few weeks, recovering their leadership position," the bank wrote.

UBS's confidence comes from three factors: attractive valuations, fundamentals, and technicals.

Tech valuations became attractive again.

UBS said that in the past decade, technology stocks have experienced nearly 10% sell-offs each year. Therefore, the recent 9% drop in the Nasdaq 100 Index is not uncommon. Healthy selling in tech stocks has made the rapidly growing industry more attractive in valuation, especially compared to previous bubbles.

"Although tech stocks are expensive after a rebound this year, the price-to-earnings ratio is still far lower than during the internet bubble period, when the profit quality of many tech stocks was much lower," the bank wrote.

Tech fundamentals still remain solid.

With Apple, Amazon, Microsoft and Meta platforms releasing their financial reports this week, UBS expects net income in the tech industry to grow by 20%-25% in the second quarter.

"Today's technology leaders still offer high-quality profit margins, strong free cash flow and robust balance sheets, which are a positive driving force at a time when economic activity is slowing down," the bank wrote.

UBS also said that this growth should continue for many years, as the AI revolution requires significant investment in architecture, such as Nvidia's GPU chips and new datacenters.

"As Alphabet CEO Sundar Pichai pointed out, the risk of underinvestment is far greater than the risk of overinvestment," the bank added.

Technical factors that support the rotation of US stocks may recede.

UBS said that short squeezing, bullish options, and hedging have driven the rotation trading of small-cap stocks, but this situation will not last forever.

"The impact of position on rotational trading will soon dissipate, and such technical factors typically dissipate about a month later," the bank added. "Therefore, we believe that the environment is still conducive to high-quality tech stocks and that investors should ensure they have sufficient exposure to AI beneficiaries inside and outside the United States."