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UBS Predicts The Big Six Internet Giants' Profit Momentum Will "Collapse" By 2024

UBS Predicts The Big Six Internet Giants' Profit Momentum Will "Collapse" By 2024
The so-called Big Six technology stocks' profit growth momentum may "collapse" during the upcoming quarters, according to strategists at UBS Global Research, who downgraded the mega-cap firms' rating on Monday.
The "Big 6 TECH+" stocks—Apple,, Alphabet, Meta, Microsoft, and Nvidia—saw a decrease in earnings per share (EPS) growth to 15.5% by the first quarter of 2025 from 42.2% predicted for the same period this year, according to analysts led by Jonathan Golub.
"Our downgrade of the Big Six - from 'Overweight' to 'Neutral' - is not predicated on extended valuations, or doubts about artificial intelligence. Rather, it is an acknowledgement of the difficult comps and cyclical forces weighing on these stocks," Golub said.
On the other hand, UBS predicted that other IT stocks would do better, projecting EPS increases of almost 26% by the first quarter of 2025, compared to an estimated 11.1% for the same time in 2024. Compared to mega-cap equities, these companies did not share in the COVID-19 boom to the same degree.
Over the next two weeks, the Big Six companies—which are seen as predictors of the IT industry and the success of the S&P 500—will release their quarterly financial reports.
These highly valued stocks have also been negatively impacted by rising bond yields, hotter-than-expected recent U.S. economic statistics, and uncertainty around the Federal Reserve's prospects for interest rate cuts.
According to UBS, the Big Six's profits momentum has gone through four distinct cyclical waves. The first one began with the COVID-19 epidemic pushing consumer demand for social media, online commerce, and personal computers.
The S&P 500 fell about nine tenths of a percent, the Nasdaq fell more than two percent, and the Dow gained more than half a percent.
Profits decreased as a result of declining demand for IT products when the epidemic passed and the economy recovered, which led to a contraction in EPS growth in 2022. The increase in profits in 2023 was brought about by simpler comparisons and lower costs for businesses.
"Earnings are projected to quickly renormalize in mega-cap tech, following a sharp decline in profit growth from 4Q23-3Q24," Golub said.
The price-to-earnings (PE) ratio of the Big Six companies is currently between 21.6 and 39 times ahead of the benchmark S&P 500 index (.SPX), while the index opens new tab trades approximately 25 times a day.

Christopher J. Mitchell

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