Catenaa, Saturday, October 24, 2026- UBS expects S&P 500 earnings per share to grow 28% year on year, driven by AI demand and an improving industrial cycle.
Mark Haefele, UBS Chief Investment Officer, said in the firm’s monthly client newsletter that AI remains the main growth engine, and expects AI capital spending to reach $900 billion this year, with semiconductor profits contributing about half of third-quarter earnings growth.
“We also expect average cloud revenue growth to accelerate from 48% in the June quarter to 58% year on year in the September quarter,” Harfele said, as investors increasingly focus on monetization, management commentary around pricing, capacity constraints, and returns on investment will be key to shaping expectations.
UBS warned that some AI infrastructure developers face increasing financial pressure as they expand computing capacity. Higher borrowing costs could delay projects, while construction setbacks may postpone the revenue needed to service debt.
The bank highlighted recent weakness in shares of neocloud companies, which supply AI computing power to customers. Unlike large cloud providers with multiple revenue streams, these businesses depend heavily on renting computing capacity and often require substantial investment before generating cash flow.
“Nevertheless, broader demand trends remain robust, reflected in rising GPU rental prices and strong semiconductor earnings,” Harfele wrote.
However, UBS added that overall corporate earnings growth remains strong and should continue to support equities, although a slowdown from the exceptional pace seen earlier this year may moderate market gains.
UBS expects the S&P 500 to reach 8,400 by the end of June 2027, and recommends diversified exposure to cyclical and structural growth, favoring AI, power and resources, and longevity.
“We continue to limit exposure to neoclouds amid funding and construction pressures, and favor well-funded hyperscalers for their better risk-reward,” Harfele said.
“We also like high-quality semiconductor and hardware beneficiaries of AI spending and believe investors should consider exposure to defensive areas of tech such as payment networks, select consumer electronics names, and select software companies,” he said.
