UBS strategists say investors were too pessimistic on AI as they flag a different sector rising to the top

UBS says investors have gotten too pessimistic about the artificial-intelligence theme and earnings may prove that.

As earnings season gets under way, festering worries about artificial-intelligence stocks could be put to bed.

So it seems based on UBS's "theme-o-meter," which gauges which market themes are rising to the top and the ones sinking to the bottom. Strategists identify themes based on a quantitative formula, evaluating macroeconomic regimes, earnings, valuation and sentiment.

"AI themes have moved back to the top of the rankings, supported by strong earnings revisions and favorable macro regime signals. We expect earnings season to reinforce the upgrades driving outperformance," a team of strategists led by Gerry Fowler told clients in a note on Wednesday.

Fowler and team say investors were dismissing the group's fundamental strength.

"The recent weakness in many AI-linked stocks appears inconsistent with the underlying fundamentals picture. In our view, some of the underperformance reflects summer deleveraging, profit-taking and positioning adjustments rather than a material deterioration in the outlook," they said.

UBS analyst Stephen Ju expects hyperscaler capital expenditure expectations will be revised up rather than down, as AI demand continues to exceed infrastructure capacity. He expects the broader AI supply chain will benefit, keeping earnings revisions more positive for longer.

Those upward earnings revisions could be seen across chips, memory, power and infrastructure beneficiaries - particularly in Europe. European AI-enablement, electrification and renewables themes are "screening among the strongest opportunities in our framework, and, in several areas, are now as attractive as - or more attractive than - equivalent U.S. themes," said the strategists.

Another rising theme is healthcare XLV, which the strategists say is an attractive compliment to AI.

Fowler and his team see the revision cycle for healthcare starting to turn after spending much of 2025 as one of the biggest sources of earnings downgrades. "We moved overweight on the sector well before the inflection became visible in consensus estimates, arguing that the downgrade cycle was close to exhaustion," they said.

The strategists said fundamentals are improving, the regulatory backdrop is stabilizing and stronger sentiment is helping to stabilize earnings expectations across parts of the sector.

Global obesity is one major growth story across global equities, and UBS analysts expect "substantial growth" in GLP-1 adoption through the decade's end, with Eli Lilly $(LLY)$ and Novo Nordisk (NVO) seen as the biggest beneficiaries.

Beyond obesity, they see opportunity for large-cap pharmaceuticals, which continue to generate resilient earnings growth even amid patent-expiry worries. Biotech IBB is benefiting from resurging M&A activity and a "richer pipeline" of potential catalysts through drug trials or other big events.

Healthcare is also "increasingly becoming an AI beneficiary in its own right," says the UBS team. "AI-driven drug discovery, clinical development and diagnostics are beginning to improve productivity across the sector, while life science tools appear to be emerging from a multiyear destocking cycle."

With improved access to capital, rising FDA approvals and increased deal activity, "the backdrop increasingly resembles the early stages of a new earnings cycle rather than the later stages of the last one," they said.

As for the weakest themes, UBS flagged consumer staples and consumer discretionary, citing macroeconomic worries and insufficient earnings revisions.

Using a quantitative plus fundamental framework to pick stocks, these names were at the top of a UBS screen for top themes: Iberdrola (ES:IBE) , Infineon (XE:IFX), SSE (UK:SSE), Talen Energy $(TLN)$, Alphabet $(GOOGL)$, Prysmian (IT:PRY), VAT Group (CH:VACN), Broadcom $(AVGO)$ and Halma (UK:HLMA).

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are mostly higher, extending gains from Tuesday's post-consumer price index performance.

 
Key asset performance                                                Last       5d      1m      YTD     1y 
S&P 500                                                              7543.59    0.53%   0.43%   10.20%  20.82% 
Nasdaq Composite                                                     26,107.01  1.12%   -1.02%  12.33%  26.26% 
10-year Treasury                                                     4.61       3.30    11.00   43.80   14.70 
Gold                                                                 4036       -1.24%  -5.62%  -6.84%  20.33% 
Oil                                                                  80.24      7.33%   6.97%   39.77%  20.43% 
Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

PayPal (PYPL) reportedly gets $53 billion buyout offer from payments group Stripe and private-equity firm Advent.

Dutch chip-equipment giant ASML $(ASML)$ lifted its full-year sales forecast due to booming AI demand.

BlackRock $(BLK)$ said assets under management topped $15 trillion, as Morgan Stanley $(MS)$ is set to report results.

Producer prices and the Empire State manufacturing survey are both due at 8:30 a.m. Eastern.

Federal Reserve Chairman Kevin Warsh gives his second day of testimony to Congress starting at 10 a.m. Ahead of that, New York Fed President John Williams is due to speak at 8:45 a.m.

Fed Reserve Gov. Lisa Cook will speak at 1 p.m. and the Fed's beige book is due at 2 p.m.

What IBM's profit warning means: Hardware is 'eating everyone's lunch.'

The chart

The chart from Barclays shows a far fewer number of individual companies beating the S&P 500 over the last 12 months, which they calculate at 37%. Strategists led by Venu Krishna say that's slightly worse than the 40% of companies that beat last quarter, but "well below historical norms over the past seven years." Around 2023, as the chart shows, that beat was nearing 65%.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

 
Ticker  Security name 
NVDA    Nvidia 
MU      Micron 
SPCX    SpaceX 
TSLA    Tesla 
IBM     IBM 
TSM     Taiwan Semiconductor Manufacturing 
AMD     Advanced Micro Devices 
PYPL    PayPal 
AAPL    Apple 
MSFT    Microsoft 

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July 15, 2026 07:03 ET (11:03 GMT)

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