Even as investors grow cautious about stretched valuations in the artificial intelligence (AI) sector, UBS maintains that the technology-driven bull market has room to climb higher.
According to the firm’s latest outlook, the S&P 500 could rise to 7,500 by 2026, powered largely by earnings growth and continued leadership from technology stocks.
UBS sees 12% upside ahead
UBS Global Head of Economics and Strategy Research, Arend Kapteyn, outlined the bank’s base case scenario in a note to clients, projecting that the S&P 500 will advance roughly 12% from its current levels.
The forecast is based on an estimated 14% increase in corporate earnings through 2026, with nearly half of that growth expected to come from the technology sector.
“The S&P 500 rising to 7,500 in ’26 [is] driven by ~14% earnings growth, nearly half of that from Tech,” Kapteyn wrote.
The index has already surged more than 15% this year, fueled by strong corporate results and enthusiasm surrounding AI-related investments.
While the outlook remains positive, UBS also acknowledged potential headwinds.
Valuations have reached their highest levels in four decades, prompting concerns that the market could face short-term turbulence.
Kapteyn said the market might see a “small negative” impact as investors adjust to the current environment of elevated prices.
AI stocks rebound after recent losses
On Monday, the broader market showed renewed momentum as AI-linked shares led early gains.
Nvidia and Palantir Technologies climbed more than 5% and 8%, respectively, while Broadcom and Oracle also advanced.
The rebound helped offset last week’s declines, when mounting worries over high valuations put pressure on the sector.
Investors appeared encouraged by signs that the record-setting US government shutdown could soon come to an end, easing one of the uncertainties weighing on sentiment.
AI-related companies, which have been the primary drivers of the market’s rally over the past year, once again demonstrated their influence on overall market direction.
Kapteyn noted that while AI stocks continue to dominate, a “broadening and strengthening of growth” is likely from the second quarter of 2026 onward.
However, he cautioned that the market may encounter a “speed bump” in the near term as President Donald Trump’s tariffs temporarily slow US economic growth.
Tariffs may cause temporary slowdown
UBS expects a “soft patch” in the global economy over the next four to five months as new tariffs affect domestic prices and global exports.
The firm anticipates that the US market will consolidate during this period, with high-quality companies expected to outperform.
“The market should consolidate and high-quality stocks should outperform,” Kapteyn wrote.
“From late Q1, we should see a broadening of the rally into lower-quality cyclicals.”
Despite short-term challenges, UBS remains confident in the underlying strength of the global economy.
The firm projects that growth will resume in 2026 as trade conditions stabilize and corporate earnings continue to improve, setting the stage for another leg higher in the long-running bull market.
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