UBS: China's AI technology hardware valuations have been low in recent history, and risk returns are becoming attractive

The Zhitong Finance App learned that UBS released a research report saying that concerns about AI fundamentals have been overmagnified, that the valuation of China's AI technology hardware stocks is close to a historically low level, and risk and return are once again becoming attractive.

The bank pointed out that after the recent adjustments dominated by technology stocks, China's major indices have fallen 18% since this year. The AI-related technology hardware stocks tracked by the bank have only risen 9% since this year. It believes that when investors restructure their portfolios in the new year at the end of the year, their attention level may pick up.

The bank also said that the profit growth of technology hardware is still strong. The profit forecast for most AI technology stocks has increased by 12% to 15% in the past three months, but the valuation is close to the historical bottom, implying a sharp slowdown in future profit growth. Historically, when valuations reached a similar level, the shares concerned rose by an average of more than 50% over the next 12 months. According to the congestion level and financing data tracked by the bank, net “hot money” holdings have fallen back to the level at the beginning of the year, the short selling ratio of Hong Kong stocks is also close to historical highs, and short selling of some AI technology hardware stocks has recently risen.

In terms of the overall market, MSCI China's 12-month forecasted price-earnings ratio has reached 9.5 times, below the historical average of 1.2 standard deviations. However, the profit growth and momentum of Chinese stocks is weaker than other markets. The appreciation of the RMB will continue to put pressure on exporters, and higher investment costs may also depress domestic consumption.

As a result, the bank favors the dumbbell strategy. The AI technology hardware first selected Chip International (00981), North China Chuang (002371.SZ), and Changxin Technology (688825.SH), and bank stocks.