Transformational Innovation Opportunities (TRIO)

4 August 2026, 09:49 UTC Chief Investment Office GWM Investment Research

Intelligence weekly #122: The software debate - A tactical rebound, rather than a broad rerating Transformational Innovation Opportunities (TRIO): Artificial Intelligence Authors: Delwin Kurnia Limas, CFA, CIO Equity Strategist, UBS AG Singapore Branch; Nikolaos Fostieris, Global Equity Strategist, UBS Switzerland AG; Kevin Dennean, CFA, CIO Equity Strategist, US Technology & Telecom, UBS Financial Services Inc. (UBS FS); Achille Monnet, CIO Equity Analyst, UBS Switzerland AG; Allen Pu, CFA, CIO Equity Strategist, UBS AG Hong Kong Branch; Arafat Alafate, CIO Equity Strategist, UBS AG Hong Kong Branch; Xueqiong Huang, Equity Strategist, UBS AG Singapore Branch

• Software has seen a small rebound over the last month, supported by selective earnings strength, historically low valuations, and positioning dynamics. However, we do not believe it represents a decisive resolution of the broader debate over AI-driven disruption; a sustained recovery will require clearer evidence that AI supports growth, margins, and competitive differentiation.

• AI is likely to affect software subsectors unevenly. Infrastructure, data-management, security, and deeply embedded enterprise platforms appear better placed to benefit from rising AI workloads, whereas lower-moat applications and IT services will likely continue to face greater risks from falling development costs, budget Source: Shutterstock reallocation, and AI-native competition.

• We therefore remain selectively positioned rather than broadly constructive on software. Our exposure is focused on large-cap platforms with defensible enterprise control points and credible AI monetization paths, complemented by targeted positions in infrastructure software, while we retain a more cautious stance on broad software, IT services, and less differentiated application vendors.

Our view in summary engineering, and security. While software businesses Over the past month, shares in software companies have with proprietary data, ownership of critical workflows, seen a selective rebound, prompting calls for a broader distribution, governance capabilities, and the financial sector recovery. Several factors support that narrative: capacity to invest are better positioned to make AI an valuations have fallen materially toward decade lows, while extension of their platforms, those whose differentiation strong quarterly results for some companies could support rests primarily on a user interface, a narrow workflow, or a a recovery in their share prices. lightly integrated feature set face a more difficult transition. Meanwhile, valuations, despite indicating potential support Nevertheless, some fundamental indicators remain mixed. levels, alone should not be treated as a catalyst if the sector’s From a structural perspective, the falling cost of developing future remains unclear. and customizing software creates viable alternatives to certain narrow point solutions and can redirect We therefore view the recent selective rebound in share enterprise budgets toward tokens, cloud capacity, data prices as a tactical rotation rather than confirmation that the

This report has been prepared by UBS AG Singapore Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Hong Kong Branch. Please see important disclaimers and disclosures at the end of the document.

Transformational Innovation Opportunities (TRIO): Artificial Intelligence

market has resolved the sector’s AI disruption debate, and Figure 1 - The launch of agent systems intensified we retain a limited allocation to software. the underperformance of the software sector Performance of MSCI World IT sector segments, indexed to 100 in AI selection list January 2025

*Potential trading restrictions. This is a copy of the Equity Preference List (EPL) "AI." As selections may change, we recommend visiting the UBS WM CIO portal (which also lists the analysts responsible for the selections and the thematic benchmark), or contacting your client advisor for the latest update of this EPL. Source: Refinitiv Datastream, UBS, as of August 2026

Note: Weights shown above are the portfolio…