UBS On-Air: House View

Concerns about AI capital spending and renewed geopolitical risks have weighed on equities. But resilient economic growth, robust demand for AI infrastructure, and strong earnings continue to support the equity outlook. Investors should stay invested and maintain a well-diversified portfolio.

Accelerating cloud revenue and continued investment indicate that AI demand remains robust. We believe AI remains a key market growth engine, though investors should favor quality and manage concentrated positions.

The Fed is likely to tighten policy further in the coming months despite an expected hold today. But we think market pricing remains too hawkish. Investors should maintain diversified equity exposure while adding selectively to quality bonds and gold.

The latest tech-led advance reflects continued confidence in AI demand, but high expectations and company-specific risks strengthen the case for looking beyond a narrow group of market leaders. We favor diversified equity exposure that includes Power and resources, Longevity, and opportunities outside the US.

This week we take a look at whether the Fed will remain patient as energy costs sustain inflation risks. If earnings can support further equity gains beyond the AI trade, and whether European earnings resilience outweigh fiscal and policy risks.

Continued attacks in the Middle East have pushed Brent crude above USD 111/bbl, adding to concerns over energy supplies and inflation. But the global energy system’s capacity to adapt, together with portfolio exposure to broad commodities, should help investors manage volatility while staying invested.

Questions around AI profitability, elevated rates, and geopolitical tensions may keep markets volatile through the earnings season. Yet we remain constructive on equities and expect AI-related growth to support corporate earnings. Investors can complement diversified equity exposure with structured strategies, select hedge funds, and commodities.

US mega-cap technology companies' earnings should provide fresh evidence of the strength of cloud growth, digital advertising, and AI adoption. Investors will also look for clearer signs of monetization and returns on investment. We remain constructive on the AI opportunity and favor diversified exposure across hyperscalers, high-quality infrastructure beneficiaries, and defensive tech firms.

Funding pressures are testing the growth model of specialized cloud infrastructure providers, but demand for AI compute remains robust. Resilient semiconductor earnings and rising GPU rental rates support our positive view on the structural growth of AI. We favor well-funded hyperscalers, high-quality beneficiaries of AI spending, and defensive tech names.

While bond market volatility may persist, elevated yields and the potential for less Fed tightening than markets expect strengthen the outlook for fixed income. We continue to rate fixed income as Attractive and see quality bonds as a source of income and portfolio stability.