Artificial intelligence will continue to power equity markets in 2026, according to UBS Global Wealth Management, which projects the S&P 500 will climb to approximately 7,700 by year-end. That target implies roughly 11% upside from current levels and would represent another year of solid gains for American stocks.
The Swiss banking giant's outlook comes as investors digest a week of strong earnings from banks and chipmakers, reinforcing the thesis that AI-related spending remains robust despite questions about the pace of adoption.
The Bull Case for 2026
UBS identifies several pillars supporting its constructive view on equities:
AI capital expenditure acceleration: The bank forecasts global AI-related capital spending will rise to $500 billion in 2026, up significantly from 2025 levels. This spending encompasses data centers, software, data infrastructure, and semiconductors.
Earnings growth: UBS projects S&P 500 earnings per share will reach $305 in 2026, representing 10% year-over-year growth. This would support current valuations if achieved.
Supportive economic conditions: The expected "soft landing" scenario—where inflation moderates without triggering a recession—provides a favorable backdrop for corporate profits.
"We maintain our conviction that the structural trend of AI will continue to power equity performance in the years ahead, and believe exposure to AI-related stocks is essential for long-term wealth preservation and appreciation."
— Ulrike Hoffmann-Burchardi, Global Head of Equities, UBS Global Wealth Management
Portfolio Recommendations
UBS recommends investors allocate up to 30% of a diversified equity portfolio to structural trends including AI, longevity, and power/resources themes. The bank specifically favors:
- Amazon: Viewed as a "coiled spring" due to investments in AI infrastructure, Amazon Leo, sports licensing, and e-commerce delivery improvements
- Arista Networks and Cisco Systems: Expected to benefit from accelerating AI and data center deployments
- U.S. utilities: Benefiting from AI-driven power demand and ongoing digital infrastructure buildout
Geographically, UBS favors U.S. technology, utilities, and healthcare. In Europe, the bank likes industrials, technology, and utilities. In Asia, it prefers China (particularly tech), Japan, Hong Kong, Singapore, and India.
The Bubble Question
UBS acknowledges the risks inherent in its bullish outlook, explicitly addressing concerns about AI-related euphoria:
Valuation concerns: Technology stocks trade at premium valuations that require continued earnings delivery to justify.
Adoption uncertainty: The pace at which companies translate AI investments into productivity gains and profits remains unclear.
Geopolitical risks: A more entrenched phase of U.S.-China strategic rivalry could disrupt technology supply chains.
Inflation persistence: If inflation proves stickier than expected, the Federal Reserve may maintain restrictive policy longer, pressuring valuations.
TSMC Validation
This week's earnings from Taiwan Semiconductor Manufacturing Company provided validation for the AI investment thesis. TSMC reported record fourth-quarter profits with a 35% year-over-year increase, driven by demand for advanced AI chips.
More importantly, TSMC raised its 2026 capital expenditure guidance to between $52 billion and $56 billion, up from $40.9 billion in 2025. This spending increase signals confidence in sustained demand for AI infrastructure—exactly the dynamic UBS expects to drive equity returns.
What Could Go Wrong
UBS identifies four primary risks that could derail its constructive outlook:
- AI disappointment: If progress in AI capabilities slows or adoption lags expectations, the premium valuations of AI-related stocks could compress.
- Inflation resurgence: A return of inflationary pressures would force the Fed to maintain or raise rates, pressuring both bonds and equities.
- Trade conflict escalation: Tariffs and trade barriers could disrupt global supply chains and corporate earnings.
- Debt concerns: The emergence of sovereign or private sector debt problems could trigger risk-off episodes.
Investment Implications
For investors considering how to position portfolios in 2026, UBS's framework suggests:
Maintain equity exposure: Despite elevated valuations, the fundamental case for stocks remains constructive if earnings growth materializes as expected.
Diversify within AI: Rather than concentrating in a handful of mega-cap names, spread exposure across semiconductors, software, internet platforms, and infrastructure beneficiaries.
Consider laggards: UBS suggests selectively adding exposure to AI-related companies that have underperformed but retain fundamental merit.
Mind the utilities: The power-intensive nature of AI creates investment opportunities in electricity generation and grid infrastructure.
With the S&P 500 currently trading near 6,900, UBS's year-end target of 7,700 implies meaningful upside potential. But achieving that target will require continued AI investment momentum and corporate earnings delivery—both of which remain subject to uncertainty in the year ahead.
