UBS Bank bullish on chips – has the selling wave ended?
We summarized UBS Bank's special report on the topic.
UBS Bank issued a special report to its clients yesterday:
“The selling wave in AI and chip stocks is nearing its end – it's time to start buying gradually.”
Let's see what exactly they claim:
UBS estimates that one of the sharpest selling waves in AI and chip stocks is about to end around the end of July,
According to the bank, the fundamentals of companies in the sector continue to improve, and therefore it's time to start increasing exposure – but gradually.
The main reason is risk management – even if the outlook is positive, UBS believes that spreading purchases over time is preferable to trying to time the exact bottom.
Meanwhile, hedge funds have already significantly cleared their positions, with net positions in the chip and software sectors returning to April levels.
From UBS's perspective, this is a situation that creates a more favorable ground for recovery, assuming money returns to the sector.
The market is also starting to provide clues that the trend may be changing,
Software stocks have risen by about 20% since late June – on Friday, UBS's momentum index jumped within about two hours from -3.5% to +2.5%, a reminder that when liquidity returns, gains can be sharp and fast.
Among the prominent companies UBS includes in the momentum stock group are Broadcom, Oracle, Datadog, Microsoft, and SanDisk.
The market likes to move from one extreme to another, and when it does, it can happen quickly.