UBS 2026 Investment Strategy: Focus on AI applications, carefully select technology stocks, and over allocate to the theme of electrification.

UBS Group AG, in its latest report "Global Stock Strategy Outlook 2026," systematically elaborates its views on the global stock market in the coming year, themes, industry allocation recommendations, and lists seven major themes. The report emphasizes that in the background of moderate economic growth, lingering inflation pressures, and the intertwining of political and technological changes at GEO Group Inc, investors should adopt a selective overweight growth-oriented theme, while also focusing on balanced strategies for valuation protection and risk defense. Theme One: Technology Stocks +, selectively overweight. Given that the capital intensity of mega-scale data center operators has almost tripled in the past four years, UBS Group AG is more cautious about investing in technology stocks +, focusing on Microsoft Corporation (MSFT.US), Amazon.com, Inc. (AMZN.US), Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), and Tencent (00700), and strategically focusing on SAP (SAP.US). UBS Group AG is cautious about Apple Inc. (AAPL.US), Tesla, Inc. (TSLA.US), and companies based on an advertising business model. Theme Two: Winners in the era of artificial intelligence. UBS Group AG emphasizes reasonably valued pure data center concept stocks. UBS Group AG believes that in 2026, there will be more focus on application scenarios (which will benefit food retailers, hotel conference companies, low-cost airlines, and Financial Institutions, Inc., etc.). UBS Group AG focuses on labor-intensive companies with pricing power, emphasizing companies like Assa Abloy, Kone, Texas Roadhouse, Inc. (TXRH.US), Next, Eaton, McDonald's Corporation (MCD.US), and BAE Systems (BAESY.US). Theme Three: Electrification. UBS Group AG still believes that this is in the early stages of development. Only 20% of global energy consumption comes from electricity; by 2050, this proportion needs to reach 55% to 70%. Europe's electricity consumption is 4% lower than before the COVID-19 epidemic. UBS Group AG focuses on European transmission and distribution companies (Elia, Redeia), renewable energy companies (First CECEP Solar Energy (FSLR.US), RWE, Solaria), U.S. independent power generation companies (Vistra (VST.US)), and some equipment companies (Schneider, Prysmian, Eaton). Theme Four: Surprises that European consumers may bring in 2026. UBS Group AG focuses on banks, retailers, consumer-centric hotels and low-cost airlines: Ryanair, Accor, and Inditex group are expected to perform well. Theme Five: UBS Group AG has been positive on European and Japanese banks for the third consecutive year because UBS Group AG still sees strong macroeconomic and valuation support. The valuation of bank stocks should be readjusted to reflect their fundamentals and potential returns that are superior to historical averages in almost all indicators. In Europe, UBS Group AG is focused on Barclays, Santander, Erste, Greek banks, and BNP Paribas; in Japan, UBS Group AG sees the risk of interest rate rises exceeding expectations, so Japanese banks have hedging functions with arbitrage trading closures. Theme Six: Defensive stock selection. Although UBS Group AG sees positive surprises in global GDP, it believes that valuation of cyclical stocks is already high based on multiple indicators (valuation, crowdedness, relationship with earnings momentum, and internal correlation of indexes). Therefore, UBS Group AG recommends buying defensive stocks that are cheap and have exaggerated risk of disruption: home products (Colgate-Palmolive (CL.US) and Reckitt Benckiser), U.S. medical equipment (Abbott Laboratories (ABT.US) and Alcon AG), seasoning companies (Novonesis), and British food retail (Tesco). Theme Seven: Gold concept stocks as a hedge against currency depreciation/sovereign credit rating downgrades: preference for gold mining equipment companies (such as Metso) over gold stocks themselves. In terms of style, UBS Group AG continues to be overweight low PEG (most important), low leverage, and factors that have positive earnings revisions. It continues to be overweight on quality factors but focuses on individual stocks with reasonable valuations and positive earnings revisions. In Europe and the UK, a slight overweight on small-cap stocks relative to large-cap stocks due to their low valuations. UBS Group AG benchmarks quality stocks (focusing on stocks with low prices and upward profit expectations). Major sectors to reduce holdings: metals and mining (excluding copper and aluminum), energy, bulk chemicals, U.S. mid-low-end consumer goods, Mag 7 stocks (whose correlation has reached a new low), capital goods, asset management companies, food producers, broadcasting companies, creative agencies, recruitment agencies, and office real estate.