Profit growth momentum of the so-called Big Six technology stocks could “collapse” over the next few quarters, UBS Global Research strategists said on Monday, downgrading its rating on the mega-cap companies.

Growth in earnings per share (EPS) of the “Big 6 TECH+” stocks—Apple, Amazon.com, Alphabet, Meta, Microsoft, and Nvidia—was projected to decline to 15.5% by the first quarter of 2025, from 42.2% estimated for the same period this year, strategists led by Jonathan Golub said.

“Our downgrade of the Big Six – from ‘Overweight’ to ‘Neutral’ – is not predicated on extended valuations, or doubts about artificial intelligence. Rather, it is an acknowledgement of the difficult comps and cyclical forces weighing on these stocks,” Golub said.

In contrast, other tech stocks are set to perform better, UBS said, forecasting EPS gains of nearly 26% by the first quarter of 2025, from 11.1% projected for the same period in 2024. These companies did not participate in the COVID-driven boom to the same extent as the mega-cap stocks.

The Big Six companies, seen as bellwethers for the tech sector and for the performance of the S&P 500, are set to report quarterly results over the next two weeks.

Rising bond yields, hotter-than-expected recent U.S. economic data and uncertainty around the Federal Reserve’s interest rate cut outlook have also weighed on these high-valuation stocks.

The earnings momentum of the Big Six has experienced four distinct cyclical waves, UBS said, starting with the COVID-19 pandemic driving consumer demand for personal computers (PCs), online shopping and social media.

Once the pandemic subsided and the economy reopened, profits suffered because of waning demand for tech products, driving EPS growth contraction in 2022. The profit upsurge in 2023 was a result of easier comparables and a reduction in expenses for companies.

“Earnings are projected to quickly renormalize in mega-cap tech, following a sharp decline in profit growth from 4Q23-3Q24,” Golub said.

The Big Six firms are currently trading in the range of 21.6-39 times their forward 12-month price-to-earnings (PE) ratio, whereas the benchmark S&P 500 index trades about 25 times.

—Roshan Abraham and Siddarth S