Transformational Innovation Opportunities: Artificial Intelligence

UBS maintains a constructive stance on the AI theme for 2H26, citing ~10% potential upside, but advises caution regarding long-term capex sustainability and potential mid-cycle digestion risks in 2028.

Key Takeaways

• 1.Maintain a constructive outlook on the AI theme with ~10% upside over the next 12 months, despite rising risks of a "capex taper tantrum".
• 2.Investment focus is shifting toward supply chain durability beyond 2027 and the risk of a mid-cycle digestion phase by 2028.
• 3.Tactical shifts include closing underweight positions in Meta and Microsoft and reducing overweight exposure in semiconductor/hardware names.

Table of Contents

• AI quick pulse: 2H26: Balancing opportunities and capex taper tantrum risks
• Our view
• AI inflection point: From chat to agentic AI
• Are valuations in bubble territory? Not a bubble in "P/E" terms, but watch the "E"
• Is AI capex getting out of hand? Watch for a potential mid-cycle digestion in 2028
• How should investors be positioned for 2H26?
• Big Tech: Gradually reducing our UW on Mag 7
• AI supply chain (semi/hardware) pecking order
• Risk table
• Appendix

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