Citi Turns Neutral on Global Tech, Sees 2027 Rotation

By Grace Kim

Citi cut its global technology rating to neutral on Monday, telling investors it is better to sit out the global tech trade until sentiment toward AI improves. Its global strategy team—Beata Manthey, David Groman and Nikhil Jadhav—made the change in a research note amid technology turbulence.

What changed in Citi’s technology call?

Citi cut the global and U.S. tech ratings to neutral, moved European tech to neutral and upgraded the broader Europe ex-U.K. market to overweight. The team remains constructive on technology over the long term, but wants the sector to turn “properly negative” before recommending it again.

The note described investors as neutral on tech relative to its weighting in indexes, while Citi saw room for further deterioration in sentiment. It also said technology turbulence could worsen, including prospects for additional weakness in tech.

Citi wants improving sentiment toward AI stocks before it would recommend the group. The team observed that AI shares plunged after the Democratic sweep in the midterm elections, as investors anticipated greater oversight from Washington.

Takeaway: Citi changed the near-term allocation without abandoning its long-term technology view.

Why have defensives taken the lead?

The recent selloff drove a major switch in market leadership from cyclical stocks to defensive sectors. Defensive stocks produced a 15% outperformance over the past month, according to Citi. Manthey described the shift as a “steady market, violent rotation” phenomenon.

The tech-dominated Nasdaq now trades at forward valuations last seen at the onset of the COVID-19 pandemic in March 2020, Citi said. That valuation reset came as earnings forecasts for 2027 remained steady and stock prices corrected.

Citi now sees risks to equity markets as more evenly balanced. Falling oil prices may also support markets, while the report still discusses the prospect of further weakness in technology.

Takeaway: Citi’s caution reflects a valuation-led rotation, not a sharp cut to its 2027 earnings outlook.

Why does Citi favor Europe ex-U.K.?

Citi upgraded Europe ex-U.K. to overweight. With European indexes less tech-heavy and more sensitive to energy prices, the bank said a correction in oil could improve the region’s prospects.

Citi’s broader allocation calls for a barbell of cyclical stocks balanced by defensives. The bank upgraded healthcare to balance its existing overweight in materials. Its research favors quality companies with healthier balance sheets and decent valuations when earnings growth remains positive but slows.

A calmer geopolitical front supports Citi’s relatively positive index targets for 2027, with emerging markets and Japan offering the most upside, the bank said.

Takeaway: Europe’s lower tech weight and greater energy sensitivity underpin Citi’s regional upgrade.

What does Citi expect from 2027?

Citi’s research found that global stocks tend to rise modestly when earnings-per-share growth is positive but decelerating, averaging about 4% in those years. Even as technology takes a growing share of aggregate earnings growth, Citi finds that these periods tend to favor incremental rotation into quality stocks and defensives.

Technology’s expanding share of aggregate earnings growth does not reverse that pattern in Citi’s research. The bank sees investors adding to quality holdings and defensives as earnings momentum slows.

Citi’s index targets leave room for gains despite that rotation:

• Topix: 5,000 by mid-2027, compared with 3,895 currently.
• MSCI emerging markets: 2,050, compared with 1,355 currently.
• S&P 500: The year-end target remains 8,100.

Takeaway: Citi’s 2027 case depends on modest index gains, broader sector leadership and calmer geopolitics.