AI bull market fully revived? UBS: The earlier correction was just a “summer shakeout,” earnings season is expected to drive the rally forward

After a phase of correction, Wall Street's attitude towards the Artificial Intelligence sector is turning optimistic again. UBS noted in its latest strategy report that the market's previous pessimistic expectations for AI-related assets have been excessive, and that recent corrections mainly reflect capital flows and position changes, rather than a deterioration of industry fundamentals.

With the US stock earnings season underway, UBS expects that corporate performance is likely to once again validate the high prosperity of the AI industry chain, further lifting earnings expectations and becoming a fresh catalyst for the sector's performance. In addition to AI, the healthcare sector is also highlighted by UBS as a key allocation direction due to improved earnings revisions and faster AI adoption; meanwhile, the consumer sector continues to rank at the bottom, given its weaker earnings momentum.

At the same time, Barclays data shows that current market returns remain highly concentrated within a few sectors: the proportion of stocks that outperformed the S&P 500 over the past year is significantly below the historical average, reflecting that capital is still focused on themes with ongoing upward earnings revision logic.

UBS: AI Regains Position as the Strongest Investment Theme

According to a client report released Wednesday by the UBS strategist team led by Gerry Fowler, their "Theme-o-Meter"—used to measure market theme strength—shows that the AI theme has once again climbed to the top of all investment themes, mainly benefiting from continued improvement in earnings expectations and a warming macro environment.

He stated: "We expect this earnings season will further reinforce the trend of upward earnings revisions and continue to drive the AI theme to deliver excess returns."

UBS believes that the recent correction in the AI sector is inconsistent with industry fundamentals and is mainly driven by seasonal de-risking, profit-taking, and position rebalancing, rather than any substantial change in the industry outlook.

Stephen Ju, the analyst responsible for internet research, further pointed out that demand for AI continues to outpace infrastructure supply. Capital expenditure by hyperscale cloud service providers is even more likely to be raised, thus driving further improvement in earnings expectations across the entire AI industry chain.

Healthcare Emerges as Key Allocation Direction Besides AI

UBS has simultaneously upgraded its rating on the healthcare sector. Strategists believe the cycle of earnings downgrades in this sector is nearing an end, fundamentals are steadily improving, the regulatory environment is stabilizing, and market sentiment is also recovering. UBS expects that the weight-loss drug market has considerable long-term growth potential, major pharmaceutical companies show strong earnings resilience, and the biotech sector is likely to benefit from revived M&A activity and product catalysts.

Meanwhile, AI is accelerating its application in drug discovery, clinical development, and medical diagnostics, helping the life sciences tools industry out of the inventory cycle and pushing the entire sector into a new phase of earnings improvement.

In contrast, UBS continues to rank consumer staples and discretionary as the weakest themes at present, believing the two sectors still lack continuous earnings revision momentum. Barclays data also shows that, over the past 12 months, only 37% of stocks outperformed the S&P 500, down from 40% last quarter and below the seven-year historical average; excess market returns remain concentrated in a few themes with sustained earnings improvement capability, and differentiation among stocks remains pronounced.