Start snapping up AI leaders again because tech stocks' slump has made them undervalued, UBS says

• It's time to load up on leading artificial-intelligence stocks, according to UBS.
• The sector has struggled over the past two months, with the Nasdaq Composite down 8% since the end of July.

Tech stocks have struggled over the past two months – the mini-slump is a buying opportunity, according to UBS.

The Swiss bank said Friday that tech is looks undervalued and valuations will surge again as investors start to see artificial intelligence boosting listed companies' earnings.

"Tech stocks have remained under pressure in September, with rising yields and mixed results weighing on performance," a team led by CIO Mark Haefele wrote in a research note. "The Nasdaq 100 index is trading around 8% below its July peak."

"But, we believe the recent weakness provides a good opportunity to add exposure to artificial intelligence (AI) leaders."

The sector started the year on a ChatGPT-fueled tear, but that rally has petered out with investors fretting that the Federal Reserve will keep interest rates high to crush inflation.

The Nasdaq Composite surged 38% between January 1 and the end of July, but has dropped 8% since.

UBS's view is that the rollout of new AI products will give tech stocks a much-needed boost as investors gauge how listed companies will monetize the field.

The total size of the AI industry will grow from $2.2 billion in 2022 to $170 billion by 2027 and account for 20% of the tech sector's total earnings growth next year, Haefele's team estimated.