By Angela Palumbo

Investors should broaden stock exposure away from the S&P 500 Information Technology sector, according to UBS.

Its Chief Investment Office downgraded the U.S. IT sector on Tuesday to Neutral from Attractive.

The sector has had a strong run, gaining 23% over the past 12 months, as Wall Street bought up shares of companies with exposure to artificial intelligence. Stocks in the sector such as Intel, AMD, and Nvidia have jumped 141%, 96%, and 42%, respectively, in that same time frame.

But 2026 has been off to a rocky start. The sector has dropped 1.1% this year, highlighting concerns investors have had with tech after such a strong run. Some on Wall Street worry that companies are spending massive amounts of money on their AI investments while a major return on those investments has yet to manifest. There is also fear that AI could replace software capabilities, which has led to a selloff of software stocks.

Adobe, Salesforce, and ServiceNow are all in the IT Sector. They have fallen 23%, 26%, and 30%, respectively, in 2026.

"The threat of increased competition makes it difficult for investors to have conviction in the growth rate and profitability of firms in the software industry, and we believe uncertainty about the outlook could linger for some time," UBS wrote.

The possibility that software uncertainty will stick around is one reason why the team downgraded the IT sector. The investment officers also cited a potential slowdown in hyperscaler capital expenditure growth.

Hyeprscalers -- large cloud service providers -- such as Amazon.com, Alphabet, and Microsoft, have committed to spending hundreds of billions of dollars more this year on AI.

"Investor concerns about the sustainability of capex growth could be an overhang, and we note that spending is now increasingly being funded by external debt or equity financing," UBS said.

The team expects the rate of capex growth will slow. While that will be a positive for shareholders of the companies that have been spending so much, it could hurt sentiment of companies that benefit from the large spending, like chip makers.

With all of this in mind, UBS also expects the stock market to keep climbing this year, pointing to likely rate cuts by the Federal Reserve and corporate earnings growth.

"To navigate potential risks and to benefit from what we expect to be a broadening market rally, we think investors with excess exposure to US IT should consider diversifying toward other preferred areas of the market, including banks, health care, utilities, communication services, and consumer discretionary," UBS wrote.

Write to Angela Palumbo at angela.palumbo@dowjones.com

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February 10, 2026 14:21 ET (19:21 GMT)

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