UBS remains positive on U.S. equities, forecasting a climb in the S&P 500 to 7,700 by December 2026 while setting an intermediate target of 7,300 for June 2026. The bank characterizes its stance on the market as Attractive, pointing to what it sees as a combination of healthy profit growth, accommodating Federal Reserve policy and the continued rollout of artificial intelligence as the principal supports for stocks.
On corporate profits, UBS strategists expect earnings per share for the S&P 500 to reach $277 in 2025 and rise further to $310 in 2026. Those forecasts imply underlying EPS growth of roughly 11% in 2025 and 12% in 2026, according to the strategists.
Current fourth-quarter results are tracking toward about 14% year-over-year growth in earnings, the strategists said, while noting the scale of earnings beats has been smaller recently. They added that company guidance has been "a touch cooler than in recent quarters but still encouraging," a characterization attributed to strategists led by David Lefkowitz.
UBS highlights a shift in market leadership within the ongoing bull cycle. Large-cap technology names have been a primary engine of gains over recent years, but earnings growth is increasingly spreading beyond the so-called Magnificent 7. UBS figures show that the group accounted for nearly two-thirds of earnings growth in 2025, and that contribution is expected to fall to about half this year.
At the same time, the strategists warned that the surge in AI-related data-center capital expenditure may be set to slow. After expanding more than fourfold over the past three years, the scale of investment now consumes nearly all of the operating cash flow at hyperscalers, UBS said. The bank cautioned that aggressive capex, driven by intense competition, may not fully deliver attractive returns on capital.
"We think this makes the risk-reward less appealing for the model developers and some of the companies that have benefited from the capex," the strategists wrote, adding that the trend is "more vulnerable to downside risks if outside investors start to worry" as funding becomes increasingly reliant on external capital.
Reflecting those concerns, UBS downgraded the Information Technology and Communication Services sectors to Neutral. Even with the downgrades and the capex-related caveats, the strategists emphasized that "current trends remain supportive and we are not anticipating downside risks in the near term."
Monetary policy expectations are central to UBS's outlook. The bank projects two additional 25-basis-point reductions in the Federal Reserve's policy rate this year. UBS argues that historical patterns show equities have tended to outperform when the Fed is easing and the economy avoids recession, a backdrop that supports their view the current bull market has more room to run.
"We think this bull market has further to go and maintain our year-end S&P 500 price target of 7,700," the strategists concluded.
Summary
UBS retains an Attractive view on U.S. stocks and forecasts the S&P 500 at 7,700 by December 2026, with a midyear target of 7,300. The bank points to solid profit growth, expected Fed easing and AI deployment as key drivers, while warning of risks tied to heavy AI-related capex and greater reliance on external funding for certain companies. UBS lowered its ratings on the Information Technology and Communication Services sectors to Neutral but does not see immediate downside risks.
Key points
- UBS projects S&P 500 at 7,700 by December 2026 and 7,300 by June 2026, keeping an Attractive view on U.S. equities.
- Strategists forecast S&P 500 EPS of $277 in 2025 and $310 in 2026, implying 11% and 12% growth respectively; Q4 results are tracking to roughly 14% year-over-year growth.
- The bank downgraded Information Technology and Communication Services to Neutral due to concerns around AI-driven capex and returns on capital.
Risks and uncertainties
- AI data-center capital spending could decelerate after a greater-than-fourfold surge over three years, affecting companies that rely on accelerating capex - this particularly impacts the Information Technology and Communication Services sectors.
- Rising reliance on external capital to fund aggressive investment programs could increase vulnerability to downside risks if outside investors become concerned; this poses risks to model developers and firms that have benefited from heavy capex.
- Although guidance remains encouraging overall, the moderation in the magnitude of earnings beats and slightly cooler guidance could signal increased near-term earnings uncertainty across sectors.