UBS recommendation for investors: These are the steps that must be taken now

An investment research report from the UBS Chief Investment Office presents a snapshot of the financial markets and attempts to signal to investors the areas of risk alongside the opportunities. At the center of the report are three main topics: the continued establishment of the artificial intelligence field despite the volatility in technology stocks, the increase in inflationary risks in Europe, and macroeconomic developments in the USA.

UBS continues to express optimism regarding the artificial intelligence industry. According to the report, Nasdaq futures rose by 0.9% after NVIDIA presented results that beat profit forecasts, with the bank projecting a growth of about 70% in the company's revenues in the 2028 fiscal year. This is a forecast significantly higher than market expectations, which stood at about 45%.

One of the key figures presented by UBS concerns the volume of use of AI systems. The consumption of tokens, the basic units of artificial intelligence calculations, has grown by more than 30 times over the past year. At the same time, global capital expenditure on AI infrastructure is expected to reach 1.2 trillion dollars in 2027, compared to about 900 billion dollars this year, an increase of 33%.

The bank also identifies signs that the huge investments in the field are starting to turn into actual revenues. The large cloud companies recorded an average growth of 48% in cloud revenues in the second quarter compared to the previous year, and the forecast for the current quarter stands at a growth of 58%. In addition, the CEO of Amazon noted that investments in data centers may support revenue generation for more than 30 years.

Alongside this, the recent volatility in technology stocks has created, according to UBS, more attractive pricing in some of the companies. Major semiconductor companies are currently trading at a forward price-to-earnings ratio of about 22, compared to an average of 24 since the launch of ChatGPT and a peak of 33. Profit forecasts for these companies indicate an increase of 92% this year and 40% in 2027.

UBS therefore recommends selective and diversified exposure to technology stocks, with a preference for artificial intelligence infrastructure, including semiconductors and cloud computing. Alongside this, the bank also notes more defensive areas, including payment networks, data center REITs, and selected smartphone manufacturers.

In the European arena, the report points to an increase in inflationary risk, partly due to the rise in energy prices. The price of natural gas in Europe has risen to about 65 euros per megawatt-hour, close to a three-year high. According to UBS, the rise is related to supply restrictions stemming from the conflict in the Middle East and lower-than-usual gas inventory levels in the European Union at this time of year.

General inflation in the eurozone rose in July to 2.9%. However, UBS's base scenario is that the energy crisis will fade later on and inflation will return to its target. The bank simultaneously warns against the possibility of persistent inflationary pressures, partly due to wage pressures and higher costs for companies.

UBS estimates that the European Central Bank will raise the interest rate once more in September and then leave it unchanged. Accordingly, the recommendation is to examine exposure to European stocks, especially in the fields of technology, industry, and banks, alongside high-quality short- and medium-term bonds denominated in euros and pounds sterling.

Data from the USA also attracts attention. The Personal Consumption Expenditures (PCE) index rose in July by 3.7% compared to the previous year and by 0.2% compared to the previous month. The data were slightly higher than economists' forecasts. The core index, which does not include food and energy, remained at an annual level of 3.3%.

The data strengthened market expectations for another interest rate hike by the Federal Reserve in September, with the probability of this rising to 42%. Despite this, UBS believes that inflationary pressures are in a trend of moderation and therefore are not changing at this stage the forecast that the Federal Reserve will not change the interest rate in the short term.

The bank estimates that a gradual decline in inflation will allow for interest rate cuts in the first half of 2027. Accordingly, one of the central recommendations for investors is to take advantage of the current yield environment to lock in yields on high-quality bonds for a period of two to five years.

Ultimately, UBS presents investors with a roadmap focusing on the central questions occupying the markets. According to the report, the demand for artificial intelligence continues to be backed by data and revenues, volatility has created more favorable pricing in some technology stocks, energy prices may make it difficult to deal with inflation in Europe, and in the USA, the downward trend in inflation may open the way for interest rate cuts during 2027.