UBS has told clients the recent sell-off in artificial intelligence stocks looks inconsistent with the fundamentals and has pushed AI themes back to the top of its rankings.
The bank's 'Theme-ometer', a quantitative framework that scores investment themes across macro conditions, earnings, valuations and sentiment, now ranks AI-exposed semiconductors, memory and infrastructure among the strongest signals globally.
Strategist Gerry Fowler and colleagues argued that much of the recent weakness reflects summer deleveraging, profit-taking and positioning adjustments rather than any deterioration in the outlook.
Market structure, in other words, has become a bigger driver of returns than fundamentals.
The core worry among investors is whether AI capital spending is close to peaking.
UBS thinks those fears are premature.
The bank's research suggests spending expectations at the hyperscalers, the largest cloud and data-centre operators, are more likely to be revised up than down, because demand continues to outstrip available AI infrastructure capacity.
If that holds, earnings upgrades could keep coming across semiconductors, memory, power and infrastructure suppliers for longer than the market expects.
Europe joins the party
The more striking shift this month is in Europe. UBS said European AI enablers, electrification and renewables themes have all climbed its rankings, helped by improving earnings revisions and supportive sentiment.
The bank argued that many of the most attractive second-order beneficiaries of the AI buildout are increasingly found in Europe rather than the United States.
European technology, capital goods and infrastructure companies are seeing the same demand tailwinds as their American peers, but from an earlier stage in the earnings cycle.
They also benefit from grid modernisation, rising power demand and, in places, domestic fiscal stimulus.
Positioning and expectations remain less stretched than in equivalent US names.
At the index level, the STOXX 600 signal has moved into buy territory, with Spain and Italy among the strongest improvers.
South Korea, Taiwan, Japan and the US still generate the strongest country-level signals.
Healthcare and the GLP-1 trade
Healthcare continues to screen well, though it is no longer the top-ranked theme. UBS said the sector's revision cycle has turned after spending much of 2025 as a major source of earnings downgrades.
GLP-1 winners, the obesity drug beneficiaries led by Eli Lilly and Novo Nordisk (NYSE:NVO), remain among the strongest themes as earnings expectations stabilise and valuations look more supportive than much of the AI complex.
The bank also flagged that healthcare is becoming an AI beneficiary in its own right, through drug discovery, clinical development and diagnostics.
The losers
Consumer themes remain the weakest area of the market globally, with valuations increasingly supportive but earnings revisions still lacking.
UK domestic exposures fare worst of all.
UK consumer and homebuilder themes sit at the bottom of the rankings, with homebuilders scoring minus 0.30 on the bank's weighted measure.
Bellway, Vistry, Taylor Wimpey, Persimmon, Dunelm, WH Smith and B&M all appear among the lowest-ranked stocks in UBS's screen.
