UBS forecasts potential growth for technology stocks after their recent recovery, despite existing uncertainties in U.S. trade policy. The firm’s analysts suggest maintaining positions in quality AI firms worldwide.

There are noted risks that could affect this outlook. The longevity of the 90-day trade truce is uncertain, and potential semiconductor tariffs might impact the sector. Furthermore, costs for tech companies could rise due to supply chain relocations.

Intricacies of Trade and Tech

The influence of anticipated changes to AI diffusion rules from the Trump administration also remains to be seen. These factors may play a role in shaping the future of the technology sector.

Analysts at UBS have put forward a forward-leaning case for technology shares, highlighting their recent rebound as a foundation for further gains. They emphasise retaining exposure to established AI firms, especially those with robust profitability and proven research capabilities, not just in North America, but globally.

To unpack this, the prior paragraphs point to a few clear threads. UBS sees room for growth in tech shares – this is rooted in the ongoing recovery exhibited by these firms. However, they’re not ignoring the fact that the backdrop remains unsettled. A temporary agreement between the U.S. and China has paused further tariffs for now, but that peace carries an expiry date. Ninety days, in trade talks, is as fleeting as it sounds. That clock is ticking.

Beyond that, there’s unease about whether new charges on semiconductors could be introduced. Should this come to pass, it could directly eat into profits and indirectly affect longer-term investment decisions in the sector. Of particular note is the threat of redirected supply chains. Having to rebuild networks of suppliers, especially when hardware and component expertise remain concentrated through specific markets, introduces added operational cost and complexity.

A further headwind, and not a minor one, lies in the regulatory domain. Policymakers in Washington are considering adjustments on technologies underpinning AI, possibly to restrict their use or slow their international reach. While nothing has passed yet, it’s a variable that can’t be ignored, especially when most high-growth firms rely on integrated cross-border collaboration.

Taken together, what we are seeing is a case where optimism should be selective. The emphasis from the bank is on “quality” – that is, those institutions with strong balance sheets, defensible margins, and a track record of navigating geopolitical friction without buckling. The margin for error is narrowing.

Tactical Opportunities in Volatile Markets

For those of us active in derivatives, especially where short-term implied volatility may appear skewed due to these tensions, this points to a tactical opportunity. There’s more movement now across equity-linked instruments than we’d typically expect midway through a quarter. Smart structuring around bullish but hedged positions might offer some level of protection, should tariffs bite harder or the policy changes materialise faster than expected.

We should also pay attention to where open interest is building, particularly around AI-linked indexes and ETFs. Shifting flows in these instruments often give us a clearer signal ahead of broader moves in the underlying.

Timing and precision are both vital here. As positioning becomes crowded, even accurately predicted moves can fail to pay unless strategies are set up with entries and exits defined carefully. The next two to three weeks could offer range-bound behaviour punctuated by sharp responses – not just from market data but headline risk from the policy front. We need to be prepared to react to tariff news and regulatory leaks with speed and discipline.

While the position held by UBS analysts strengthens the case for select plays in long positions, the real advantage may lie in tactical trades that adapt to push-pull forces from all sides. With implied volatility levels already reacting to political rhetoric, we can’t underestimate how fast these shifts will feed through to skew pricing and correlation spreads, especially as machines react faster than headlines can finish printing.

In short, it’s calm on the surface, but the flow beneath is anything but quiet.

Create your live VT Markets account and start trading now.