In a recent analysis by UBS US Equity Strategy, a critical look has been cast on the future performance of Big Tech companies. Despite the ongoing optimism that has buoyed their stocks, a closer examination reveals potential challenges on the horizon. Jonathan Golub, a leading strategist at UBS, has delved into the earnings projections and momentum of these tech giants, comparing their trajectory with that of the broader market. Here’s what investors need to know.

The crux of Golub’s analysis centres on the earnings per share (EPS) growth and revisions for Big Tech, which, for the moment, remain above market expectations. This robust performance has been a key driver behind the excess returns these stocks have enjoyed. However, the situation is set to evolve.

The key takeaway from Golub’s analysis is the expected deceleration in earnings momentum for Big Tech throughout 2024. This anticipated slowdown stands in stark contrast to the forecasted acceleration in EPS for non-Tech sectors. The implication here is clear: the primary engine that has propelled Big Tech stocks to their lofty valuations may soon begin to lose steam.

Given this backdrop, the continued outperformance of the Big Six tech companies appears increasingly difficult. Although upward revisions in earnings projections have been supporting these companies, the looming deceleration in future profits is a factor that cannot be ignored. This anticipated shift in momentum is not just a potential speed bump but could represent a significant headwind for Big Tech.

Investors who have been riding the wave of Big Tech’s success might need to start preparing for a change in weather. While the sector has outperformed the broader market for some time, the indicators pointed out by Golub suggest that this rally may be on borrowed time. The deceleration in earnings momentum, contrasted with the acceleration in other sectors, hints at a more challenging environment ahead for Big Tech.

As the landscape shifts, the ability of these tech behemoths to maintain their dominance and continue delivering excess returns could be tested. Investors would do well to keep a close eye on these developments and consider diversifying their portfolios to mitigate potential risks. After all, in the dynamic world of the stock market, change is the only constant.