Nasdaq hits new high: What opportunities remain in tech stocks? UBS highlights four key areas

As the Nasdaq Index hits a historic high and market valuations soar, investors are facing the classic dilemma of “chasing highs while fearing heights, and anxiety over missing out,” but this does not mean that opportunities have disappeared—the key lies in finding those stocks that are mispriced by the market.

On May 27, according to Wind Trading Desk, the UBS (UBS) HOLT team has released a new objective quantitative screening framework, systematically identifying four major categories of investment opportunities from approximately 600 tech and communication services (TMT) companies in North America and Europe: Inflecting Fundamentals, Quality Laggards, Wealth Compounders Priced to Fade, and Sentiment Mismatch.

This framework strips away market noise and goes straight to the core of cash flow return on investment (CFROI) and asset growth, and each of the four screening categories has its own focus, catering to investors with different risk preferences. Representative stocks include Broadcom, Accenture, Microsoft and Amphenol, all rated “Buy” by UBS.

The core logic of UBS is: there is a significant deviation between market pricing and fundamental reality, which is exactly the source of excess returns.

Inflecting Fundamentals: Finding “top performers” with dual momentum and returns

At market highs, finding companies whose fundamentals are breaking out at an accelerating pace is the core of going with the trend.

This framework identifies companies with rapid CFROI (cash flow investment return rate) improvement compared to peers and strong momentum, while filtering out those whose valuations are excessive relative to history and industry, making it suitable for investors seeking accelerated capital returns and strong business momentum.

UBS’s “Inflecting Fundamentals” model precisely targets those stocks with soaring returns, analyzing Broadcom as a typical case, stating as the importance of inference in AI workloads increases, Broadcom’s leadership in ASIC chips is translating into strong performance.

Data shows Broadcom’s CFROI in 2027 is expected to exceed 80%, ranking 3rd in the entire tech sector and 5th among all global companies.

However, market pricing shows significant deviation: despite fundamentals hitting new highs, the market still prices it as if CFROI will return to pre-AI era levels and mid-single-digit asset growth.

Broadcom combines high quality, low embedded expectations, and extremely strong momentum (its CFROI upgrade ranks in the top percentile among U.S. tech stocks), making it the “best in class” stock under this investment style.

Quality Laggards: Historic valuation discounts from being wrongfully punished

While market funds flood into hot concepts, some high-quality companies with long-term profitability are being ruthlessly sold off.

This framework focuses on high quality (CFROI forecast of at least 8%), those down over 5% year-to-date, and currently trading at below historical valuations. The software and IT consulting sector, due to concerns about the long-term impacts of AI, has become the focus of this strategy.

UBS’s screening criteria provides a great “bargain-hunting” list for contrarian investors, highlighting Accenture, which has delivered continuous CFROI over 20% for the past twenty years—only 30 companies worldwide have achieved this feat.

Recent consensus forecasts show its CFROI will further rise to nearly 45%. However, due to worries about new AI models possibly causing disintermediation and margin pressure, investor sentiment is under pressure, causing the stock to fall about 35% year-to-date.

From the valuation perspective, extreme pessimism has created a rare buying opportunity: measured by Economic P/E, Accenture’s current discount relative to the market is the largest in history; and in terms of absolute valuation, the current cheapness is only rivaled by the depths of the 2009 financial crisis.

Wealth Compounders Priced to Fade: Long-term value amid expectation gaps

These companies are true “money printers,” but the market usually misprices them by being overly pessimistic or due to short-term increased capital expenditures, creating huge expectation gaps and long-term opportunities for investors.

This framework identifies companies that have shown high CFROI and asset growth over the years, thus achieving compounding economic profit growth at above-average speed. However, the market incorrectly prices their CFROI as if it will enter long-term decline.

UBS says Microsoft has demonstrated sustained excellent operational capability over the past decade, with CFROI rising from about 15% in 2015 to over 25% last year.

Although short-term CFROI is expected to slow due to increased AI infrastructure investments, its economic profit (EP) is still expected to increase by over $25 billion by 2027.

Strong economic profit creation has always marked Microsoft’s value creation history, with only two years of real decline in economic profit over the past two decades. Despite such a brilliant track record, the market remains skeptical in its current forecasts, pricing in nearly 900 basis points (900 bps) of long-term CFROI erosion.

This serious disconnect between fundamentals and pricing is the core logic of classifying Microsoft as a “wealth compounder priced to fade.”

Sentiment Mismatch: Capturing the divergence between upgraded fundamentals and declining stock prices

When analysts are continually upgrading a company’s earnings expectations but the stock price keeps dropping, it often signals the market hasn’t fully reflected recent business momentum in its pricing.

This framework screens companies which have underperformed the regional market by at least 10% in the past quarter, but whose CFROI expectation (analyst forecast) have been upgraded. This mismatch between improving fundamentals and market sentiment is a great signal for catching mispricing.

UBS says that driven by strong demand from hyperscale cloud computing providers for high-speed interconnect systems, Amphenol’s stock price surged about 100% in 2025. Despite highly consistent upgrades by analysts, the stock has declined year-to-date, reflecting a change in investor sentiment.

The current market focus has shifted to risks: concerns that Amphenol’s copper interconnect product portfolio may be surpassed by rapidly growing demand for optical solutions, while the company’s optical strength is still regarded as relatively early-stage.

As the stock price drops, its valuation becomes increasingly attractive. Currently, the market-implied CFROI is at the lowest level in over thirty years, while Amphenol’s “Market Implied Yield” is at a historic high, making it one of the most attractive targets in tech hardware and equipment.

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The above content is from Wind Trading Desk.

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