Dive Brief:

• The profit growth momentum of the so-called Big Six tech firms — Apple, Amazon, Google-parent Alphabet, Meta Platforms, Microsoft and Nvidia — could “collapse” over the next few quarters, UBS Global Research said in a Monday report.

• UBS downgraded its rating for all six of the tech giants. Growth in earnings per share of the companies is projected to downshift to 15.5% by the first quarter of 2025, from an estimated 42.2% for the same period this year, UBS strategists, led by Jonathan Golub, said in the report.

• "Our downgrade of the Big Six — from ‘Overweight’ to ‘Neutral’ — is not predicated on extended valuations, or doubts about artificial intelligence,” the report said. “Rather, it is an acknowledgment of the difficult comps and cyclical forces weighing on these stocks.”

Dive Insight:

The UBS report comes amid recent signs of volatility in the tech market after several months of an AI-driven boom. Tech market analysts have been divided over whether the boom reflects a potential tech bubble that could burst at some point in the future.

In February, NVIDIA reported that its revenue for the fourth quarter ending Jan. 28 reached $22.1 billion, up 22% from the third quarter and 265% from a year earlier. Meanwhile, the chipmaker’s shares skyrocketed 246% in 2023, according to CNN Business. Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla — known collectively as the “Magnificent 7” — dominated the S&P 500, soaring well over 100% last year, the publication said.

But Friday capped off one of the worst weeks for tech stocks since March 2020, when the COVID-19 pandemic triggered a stock market crash, according to the Associated Press.

Nvidia’s stock fell 10% Friday, as part of a broader tech stock plunge, The Wall Street Journal reported. Altogether, the Magnificent Seven shed $950 billion in market value last week, according to the report.

The loss has raised the stakes for this week’s round of tech earnings, which begin Tuesday with Tesla, the Journal said. Meta reports on Wednesday, followed by Microsoft and Google on Thursday.

Big tech’s earnings momentum has gone through various cycles in recent years, according to the UBS report. The pandemic drove consumer demand for personal computers, online shopping and social media. In 2022, there was EPS growth contraction due to waning demand for tech products as the pandemic subsided and the economy reopened. The profit upswing in 2023 reflected easier comparables and a reduction in expenses for companies, UBS said.

Friday’s selloff “was partially due to the fact that traders did not want to maintain inventory over a weekend in case the fighting in the Middle East escalated,” Louis Navellier, founder and CEO of Navellier & Associates, said in an email. “Fortunately, I am expecting wave after wave of positive announcements in the upcoming weeks that should propel our growth stocks significantly higher in the upcoming weeks.”

On top of geopolitical uncertainty, Wall Street is also grappling with challenges related to inflation and interest rates. Federal Reserve Chair Jerome Powell said earlier this month that data this year has not bolstered optimism among policymakers that inflation is slowing at the steady pace needed to justify trimming interest rates from a 23-year high, as previously reported by CFO Dive.