Strong first-quarter results from five of the so-called Magnificent 7 technology giants have reinforced the bull case for artificial intelligence investment, according to UBS, which is maintaining its attractive rating on US equities and a year-end S&P 500 target of 7,500.
Analysts at UBS Global Wealth Management's chief investment office said AI-related demand remains strong, pointing to a significant acceleration in cloud revenue growth and a sharp increase in order backlogs as evidence that spending on data centre infrastructure is paying off.
Alphabet Inc (NASDAQ:GOOG) indicated that its capital expenditure growth would remain significant into 2027, while electric utility companies reported accelerating discussions with major cloud providers over long-term power supply contracts.
With 70% of S&P 500 companies by market capitalisation having reported, nearly 80% are beating both sales and earnings per share estimates, ahead of the long-run average.
Earnings growth is coming in above UBS's own 17% forecast for the quarter, and second-quarter earnings estimates are being revised higher rather than lower, which the bank described as an encouraging departure from the normal seasonal pattern.
The S&P 500 has hit a record high after surging more than 10% in April, but UBS said elevated valuations of around 21 times forward earnings were not in themselves a reason for caution, arguing that the 12-month outlook for corporate profits remains the more important variable.
The bank flagged a resumption of energy flows from the Middle East as a key near-term condition for further gains.
