UBS is urging investors to rethink what “AI winners” look like in 2026 — and to rotate away from parts of software toward companies that build and power the real economy.
Ulrike Hoffmann-Burchardi, global head of equities and chief investment officer for the Americas at UBS Global Wealth Management, said the surge in artificial intelligence is likely to disrupt sections of the technology sector, particularly software businesses and service providers that depend heavily on software-driven workflows. Her message: portfolios may need to shift from “bits to atoms,” favoring firms tied to physical infrastructure.
From software to physical infrastructure
UBS says it is increasing exposure to companies that make, move, or generate the things required to run an AI-heavy economy. That includes equipment makers, power generators, and resources producers — areas that sit closer to tangible assets than intellectual property.
The thinking is that AI can replicate or compress the value of many digital services, while physical capacity remains harder to copy. Mines, grid upgrades, turbines, data-center power systems, and industrial supply chains can’t be “prompted” into existence. In UBS’s view, that distinction matters more as AI becomes a real-time competitor to some software-backed business models.
Market leadership is already rotating
The repositioning comes as leadership beneath the surface has been shifting. UBS points to a rotation away from the most crowded technology trades as investors reassess valuation risk and earnings durability. The bank has said it has downgraded the Information Technology and Communication Services sectors of the S&P 500 while favoring the “physical parts” of the benchmark instead.
For stock pickers, UBS’s tilt is not a blanket rejection of tech. The preference is for companies that are explicitly “AI-first” in strategy rather than broad, undifferentiated exposure to software as a category.
Why the AI era could change risk premiums
UBS argues that AI’s self-learning nature makes the pace of change faster and less predictable than prior technology cycles. As coding tools evolve from generating small snippets to producing entire architectures, the time it takes for business models to be challenged can shrink dramatically.
That dynamic may raise uncertainty premiums across markets. UBS suggests intangible-heavy businesses and long-duration investments could face higher required returns as investors demand more compensation for disruption risk, while companies anchored in tangible assets could prove comparatively resilient.
UBS warns of a tail-risk credit shock
In separate commentary, UBS strategist Matthew Mish outlined a “tail risk scenario” in which a rapid AI shock triggers higher defaults across US credit markets, with the greatest stress concentrated in private credit.
Under that scenario, UBS sees defaults potentially rising to 3%–6% in US high-yield bonds, 8%–10% in leveraged loans, and 14%–15% in private credit. UBS notes that private credit has grown into a structurally significant slice of corporate debt, and that stress could spill into public markets through widening spreads and weaker liquidity.
UBS also flagged that exposure would not necessarily stay contained to non-banks. The bank highlighted potential knock-on risks for banks and insurers via ties to non-bank lenders and structured credit vehicles, particularly if defaults spike and valuations reset.
Macro backdrop still supportive, UBS says
Despite emphasizing disruption risk, UBS remains constructive on equities overall. Hoffmann-Burchardi expects a broader set of market leaders after years of heavy concentration, supported by a combination of fiscal impulse across major economies and monetary easing conditions that can underpin growth and earnings.
UBS is also encouraging geographic diversification, including emerging markets, after a prolonged stretch of US dominance. Still, the bank sees the US as structurally advantaged over the long term due to innovation concentration, capital inflows, and leadership across themes such as AI, electrification, and health-care longevity.
What investors are watching next
For UBS, the key question is whether the ongoing surge in AI capital spending will translate into profits that justify valuations — and whether earnings strength can broaden beyond the largest technology names.
If AI becomes a sharper divider between winners and losers, UBS expects the market to reward firms with real-world capacity: power generation, industrial equipment, and resource supply — the “atoms” that keep the digital boom running.
Read the original report via Bloomberg’s coverage of UBS’s “bits to atoms” strategy shift.
