Invest in transformational innovation

21 August 2026, 09:36 UTC Chief Investment Office GWM Investment Research

Strategic: Invest in transformational innovation Invest in transformational innovation Author: Sagar Khandelwal, Strategist, UBS Switzerland AG

• Why? 1) Innovation remains a key driver of long- term equity performance and an important feature of enduring market leaders. 2) Structural shifts in AI, energy infrastructure, and health care are expanding global profit pools and reshaping industries. 3) We expect our TRIO themes to offer durable, structural growth that we believe can persist well beyond short- term market volatility.

Position at the forefront of change and seek long-term growth in transformational innovations. Source: Anna Evans_Unsplash

Historically, the stock market has mirrored transformational this momentum could quickly shift investor attention structural changes. In the US, the Dow Jones Industrial back to monetization. Gains thus far have been led by Average has been variously dominated by steel, automobile, semiconductors, though we think the value-creation story internet, and pharma companies as technological is broadening beyond US technology, with opportunities innovations have blossomed. Our analysis also shows that emerging across the enabling (semiconductors, cloud), between 1990 and 2020, a mere 2.4% of US companies and intelligence (software, algorithms), and application layers. 1.4% of non-US firms account for 100% of stock market Within semis and hardware, our top three areas of focus are returns. currently semiconductor capital equipment, foundries, and compute names, particularly CPU-related. Picking the right themes and the right companies at the forefront of those themes is therefore crucial for long- Power and resources term equity returns. So, we identify three enduring market The intersection of AI-driven demand, energy market drivers, exposure to which should be investors' first task disruption, and geopolitical risk is sharpening the focus when building long-term stock allocations as part of a well- on energy security and infrastructure resilience. Elevated diversified portfolio. energy prices reinforce the importance of resolving grid bottlenecks and accessing essential materials. We expect These Transformational Innovation Opportunities (TRIOs) are capital allocation to remain directed toward power, grid, and AI, Power and resources, and Longevity. critical resources, with the current investment cycle shaped by structural growth drivers and tactical risk mitigation AI considerations. The AI rally is in its fourth year, but the narrative is evolving. We project the total AI addressable market to reach USD Ballooning data center demand is continuing to accelerate 3.1tr by 2030, growing at a 30% CAGR from 2026. The investment in power and grid infrastructure, with global sharp rise then rebound in many semiconductor companies grid investment projected at USD 500bn in 2026 and and other AI-linked parts of the market this year has annual sector investment reaching USD 3tr by 2030. heightened the risk of single-stock concentration. Opportunities span grid resilience, renewables, nuclear, industrial automation, and critical minerals, with companies Looking ahead, we expect AI capex to rise further, with at the core of this transition reporting record order backlogs supply bottlenecks in key segments requiring significant and robust demand. time and investment to resolve. While higher spending and strong earnings are a tailwind, any reversal in

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures at the end of the document.

Invest in transformational innovation

Longevity markets' unique risks, including but not limited to illiquidity. While ongoing geopolitical uncertainty in the Middle East has weighed on investor sentiment in more economically sensitive sectors, health care companies’ revenues tend to be less affected by these developments. We think that the diversified supply chains and strict cost controls of health care companies should allow them to protect profit margins, even in adverse scenarios where energy prices remain high.

How the TRIOs can complement a…