Investor appetite for the Life Science Tools & Diagnostics sector is showing signs of recovery following a disappointing first quarter and lingering worries about artificial intelligence disruption, according to Citi analyst Patrick Donnelly. In a note outlining his preferred equity ideas for the second half of 2026, Donnelly expressed cautious optimism that end-market conditions may be starting to improve.
Citi ran a proprietary survey through its Research Innovation Lab that focused specifically on ordering patterns and expectations. The survey emphasized trends in instrumentation and bioprocessing, and Citi reported that sentiment on AI for tools is gradually shifting toward a more positive view. Respondents suggested that AI could help accelerate drug development timelines and, in doing so, may underpin reinvestments into research and development pipelines.
Top stock selections
Citi identified four names it favors heading into the second half:
- WAT - Citi’s top pick in the Life Science group. Donnelly pointed to continued strength in the company’s base business driven by idiosyncratic factors and an ongoing instrument replacement cycle. He expects business development execution to remain solid and to drive potential upside to earnings.
- WST - The company emerged from a strong first quarter and management commentary has remained constructive regarding long-term revenue and margin opportunities. Citi highlighted expanding GLP access and demand as well as increasing non-GLP traction across biologics, biosimilars and Annex-1. Citi noted a cyber-attack in May that may lead to one-time elevated expenses, but it is not expected to have a material impact on the second quarter or the full year.
- GH - Citi’s top Specialty Diagnostics pick. Donnelly said the company shows continued momentum in its Oncology and Screening franchises. Oncology volumes have been driven by Reveal MRD performance, and the recent FDA approval for G360 Liquid moved that test closer to ADLT pricing. Citi suggested Shield appears positioned to beat and raise, with inclusion in ACS guidelines offering an additional volume catalyst.
- CRL - Among contract research organizations, CRL is seen as well positioned to benefit from renewed biotech funding and is viewed as having the largest moat versus AI disruption. Donnelly cited strong DSA bookings and proposal activity, with expectations for book-to-bill to trend above 1x. He also noted the company has a high degree of visibility into margin expansion in the second half and that Citi added the stock to its upside 90-day Catalyst Watch.
Market context and outlook
Donnelly’s note frames these recommendations against a backdrop of tentative improvement in ordering metrics and a shift in sentiment toward the potential of AI to augment drug development rather than solely threaten parts of the tools franchise. Citi’s lab-level survey data informed the emphasis on instrumentation and bioprocessing patterns, which underpinned the analyst’s views on near-term opportunities and risks across the selected names.
While Donnelly expressed guarded optimism, the note reflects that recovery is gradual and tied to concrete drivers such as instrument replacement cycles, expanding access models, regulatory approvals and guideline inclusions that can spur incremental volumes.