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Big US tech back on investors’ table as inflation risks ease – UBS

US inflation may be starting to ease off and this means big tech are back on the table for investors, according to UBS. While headline US consumer price inflation is at its highest since the early 1980s, core inflation, which excludes more volatile prices like food and fuel, rose just 0.3% for the month, less than the 0.5% estimated. UBS is not the only one to think core inflation has now peaked year-on-year. “We see that data as very positive as evidence of easing inflation, which we expect in coming months, will start to reverse the negative feedback loop from inflation pressure to higher policy/rates pricing and then to lower growth expectations,” said UBS strategists Stuart Kaiser and Artour Danilov, who said their first ‘leg’ of an options spread would be some long tech exposure. They noted that the Nasdaq 100 has de-rated by 20% since November, with forward earnings per share up nearly 7%. While “some investors believe a larger drop is needed”, with the Nasdaq’s P/E ratio still 25% above the 2015-2019 average and more than twice the 2011 lows, “we are less concerned”. This is due to the strong EPS growth of 12-14% the next two years, which the strategists believe will “chip away at valuation”, if all else remains equal. While investor angst on margins and input cost pressures is expected to keep earnings days volatile, the UBS strategist team expects around a 9% beat of Q1 consensus, driven by revenue beats. “Much focus will be on mega cap stocks”, they added, noting Apple Inc, Tesla Inc (NASDAQ:TSLA), Alphabet Inc (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN) and Facebook owner Meta Platforms Inc were 31% of S&P single stock options volumes and 16% of open interest on average. Tesla, Apple, Meta, Amazon and Alphabet were among the most popular investments for many UK investors last month too.