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UBS: Tech's Future in AI, Health, Green Sectors; Key Stocks Noted

UBS identifies enabling technology, healthtech, greentech, and fintech as key sectors driving the next tech innovation wave, spotlighting 29 U.S.-listed stocks.

By Athena Xu

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4/9, 08:44 EDT
ASML Holding N.V. - New York Registry Shares
Broadcom Inc.
Baidu, Inc.
Intercontinental Exchange Inc.
Mastercard Incorporated
Stryker Corporation
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Key Takeaway

  • UBS identifies enabling technology, healthtech, greentech, and fintech as key sectors for the next tech wave, spotlighting stocks like McKesson and ASML.
  • Data center sector expected to grow 15%-20% in 2024-2025; Eaton, Schneider Electric, Cummins poised to benefit from increased demand.
  • AI predicted to be a defining theme of the decade, driving growth in semiconductor and software industries with significant CEO interest.

Disruptive Tech Trends

UBS has identified key sectors that are poised to lead the next wave of technological innovation over the coming decade. According to a report released on March 14, the investment bank highlights enabling technology, healthtech, greentech, and fintech as the primary areas where significant advancements and disruptions are expected. UBS's analysis suggests that companies operating within these sectors are likely to experience "superior" earnings growth, driven by "positive, durable structural trends." The bank has curated a list of 29 U.S.-listed companies that are believed to embody these characteristics, offering a "longer-term focus" with "strong structural growth drivers."

Spotlight on Selected Stocks

Among the companies on UBS's list, several stand out due to their unique positions within their respective fields:

  • McKesson is recognized for its expansion into data-driven services across the U.S. healthcare value chain, leveraging its oncology division's extensive prescription and outcome data to aid pharmaceutical companies in drug development.
  • Baidu is noted for its potential growth catalysts in cloud computing, autonomous driving, and other non-advertising businesses, underpinned by its expertise in AI and machine learning.
  • Stryker is commended for its growing share in core orthopedic markets and its leadership in robotic surgery, with expectations of continued margin improvement and earnings upgrades.
  • ASML is highlighted for its monopoly on EUV lithography machines essential for advanced processor chips production, with a strong supply chain adding to its defensiveness.
  • Broadcom is praised for its market-leading position in semiconductor design and its fab-less manufacturing model, which enables strong free cash flow and a focus on semiconductor R&D.

Additionally, UBS mentions fintech companies like Intercontinental Exchange and Mastercard, greentech firms such as Air Liquide, Engie, and Wacker Chemie, and other tech giants like ServiceNow and TSMC.

Data Centers and AI Growth

UBS forecasts a significant growth spurt for the data center sector, driven by the increasing demands of cloud computing for artificial intelligence applications. With an expected growth rate of 15% to 20% for 2024 and 2025, and continued double-digit growth thereafter, the sector's expansion is attributed to the growing needs of hyperscalers and large language models. UBS identifies Eaton, Schneider Electric, and Cummins as key stocks to benefit from this trend, with each company positioned to capitalize on the rising demand for data center capacity and power management solutions.

AI's Role in Tech Advancement

The role of artificial intelligence in driving the next phase of technological advancement is underscored by a PricewaterhouseCoopers survey, which found that nearly 75% of global CEOs anticipate AI to significantly change their businesses within the next three years. UBS echoes this sentiment, predicting that AI will be the defining tech theme of the decade. The bank expects AI to continue serving as a key driver for global tech stocks, with a particular focus on the semiconductor and software industries. Recent product announcements and positive management commentary further support the optimistic outlook for AI's impact on tech growth and earnings.

Street Views

  • UBS (Bullish on McKesson):

    "The company offers health-care services in a range of areas, including the distribution of pharmaceuticals, information technology and care management... expanding its focus on a range of data-driven services across the U.S. health-care value chain."

  • UBS (Bullish on Baidu):

    "The Chinese internet giant is a major player in cloud computing, which will be a growth catalyst, thanks to its expertise in AI and machine learning... In our view, Baidu’s profitability should improve over the next few quarters, and it’s trading at an attractive valuation relative to its historical price-to-earnings ratio range."

  • UBS (Bullish on Stryker):

    "The medical technology company’s share in its core orthopedic markets has been growing, supported by its leading position in robotic surgery... The medical surgical and neurological business has also returned to strong growth as the pandemic impact fades."

  • UBS (Bullish on ASML):

    "UBS says it believes lithography capital expenditure spending should continue to rise over the next few years, which should enable Dutch semiconductor firm ASML to outgrow its peers... Often underappreciated is ASML’s role as a systems integrator..."

  • UBS (Bullish on Broadcom):

    "Its fab-less manufacturing model allows Broadcom to generate strong free cash flow and maintain a lean capital expenditure requirement and to focus on its core strength of semiconductor research and development."