(Bloomberg) -- Beaten-down China internet stocks are likely to do well in 2024 while US Big Tech takes a back seat — a stark reversal to this year’s trend.

That’s the view of UBS Group AG strategists led by Andrew Garthwaite, citing rising earnings expectations and depressed valuations on Chinese tech stocks such as Alibaba Group Holding Ltd. On the other hand, they highlight analysts slashing their outlook for Apple Inc. and Tesla Inc. profits.

China’s tech shares have struggled to find traction this year, with the Hang Seng Tech Index sliding on concerns over the country’s economic recovery. Meanwhile, an eight-day winning streak has ballooned the Nasdaq 100 Index’s gain to 40%.

The performance of Chinese tech stocks has “abnormally lagged” despite efforts by companies to cut costs and shore up earnings, Garthwaite added. 

The Nasdaq Golden Dragon China Index in the US, which counts the likes of Alibaba, JD.com Inc. and Netease Inc. as members, trades at a more than 30% discount to the Nasdaq 100 Index on a forward price-to-earnings ratio basis.

Elsewhere in Asia, semiconductor industry bellwethers Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. trade cheaply despite their tech advantage and a recovery in the memory-chip market, UBS said.

The UBS strategists said they are turning more cautious on the “Magnificent Seven” tech companies that have been at the forefront of the rally in US stocks this year, because of faltering earnings trends. A maturing online advertising market could be another headwind for the group, they said.

Within the tech sector, UBS favors software companies due to their defensive nature and high recurring revenue streams. 

--With assistance from James Cone.

©2023 Bloomberg L.P.