UBS: The recovery of the US industry is spreading from AI to a wider range of industries, and the “list of winners” has been released

The Zhitong Finance App learned that UBS analysts said that the US industrial economy is showing signs of broader recovery, and the trend of improved demand, increased capital expenditure, and enhanced pricing capacity is spreading to more and more industries.

In a report released on August 11, UBS gathered the opinions of a team of analysts from various major industries, pointing out that the second-quarter profit situation strengthened its confidence in the second half of 2026 and next year's industrial cycle. The transportation industry remains healthy, aviation demand is strong, cargo activity is improving, and the real estate market is stabilizing.

Government and defense spending is also growing at an accelerated pace, while investment in power infrastructure and data centers remains an important driver of growth. Artificial intelligence continues to benefit electrical equipment, connectors, and logistics efficiency, but UBS believes investors' interest is expanding beyond companies that are mainly seen as beneficiaries of artificial intelligence.

The obvious weak link is the automotive industry, as well as some chemical and packaging industries, where inflation and commodity costs remain a concern.

Capital expenditure recovery goes beyond artificial intelligence

One of the strongest signals comes from capital spending outside of markets related to artificial intelligence. According to UBS data, the median organic growth rate of non-AI industrial companies accelerated from 1% in the first quarter to 5% in the second quarter. Meanwhile, 45% of the S&P 500 companies are expected to increase capital expenditure by 10% or more, compared to 35% in the same period last year.

UBS remains optimistic about industrial companies affected by artificial intelligence as the potential market for data centers continues to expand. However, analysts warned that the valuations of hyperscale data center operators could become more vulnerable if adjustments to capital expenditure plans slow down.

UBS is focusing on 3M (MMM.US), Johnson Controls (JCI.US), Trane Technology (TT.US), and Parker Hannifin (PH.US) among companies whose profit expectations are likely to rise. Furthermore, as the cyclical recovery intensifies, UBS also pointed out that stocks such as Honeywell (HON.US), Dover (DOV.US), Klein (CR.US), Ingersoll Rand (IR.US), Emerson Electric (EMR.US), Gates Industries (GTES.US), and FOSS (FLS.US) are worth watching.

Power and data centers support the machinery industry

The machinery, engineering, and construction sectors are also showing signs of improving market conditions. Almost all companies covered by UBS surpassed expectations in the second quarter, with the exception of AGCO.US (AGCO.US) and Cummins (CMI.US). Twelve companies raised their performance expectations, while only 3 lowered their expectations.

The non-residential construction sector continues to grow, while the agricultural market weakens, and demand for trucks is expected to strengthen in the second half of the year. Short-term industrial market trends are fragmented.

Electricity demand continues to be a major driver for Caterpillar (CAT.US), Cummins (CMI.US), and engineering and construction companies. For example, Quanta Services (PWR.US) raised its expectations for grid and data center technology activities. UBS also believes that private sector investment in life sciences and semiconductors is growing at an accelerated pace.

UBS believes that United Leasing (URI.US) will benefit from the accelerated development of non-residential construction, while Guangda Services has strong grid demand and good reservation prospects. These two companies are the first choice in this sector.

Airlines still have pricing power

The airline performed better than investors expected after the earnings season ended. UBS said the results allayed concerns that revenue growth in the third quarter had peaked or that capacity plans for the fourth quarter were too high. Market demand remains strong, and revenue growth in the fourth quarter of some airlines is likely to exceed that of the third quarter.

Consumer resistance to the continued rise in ticket prices is limited, and UBS believes this indicates that the airline industry's pricing capacity has increased. The airline that analysts are most optimistic about is United Airlines (UAL.US), followed by Delta Air Lines (DAL.US) and Alaska Airlines Group (ALK.US). UBS also gave American Airlines (AAL.US) and Southwest Airlines (LUV.US) a “buy” rating.

Freight recovery is gaining momentum

The transportation industry's recovery cycle is also continuing as planned, although the degree of improvement is uneven. The freight volume trend of LTL freight companies in July was better than in previous years, while railway companies, including CSX Transportation (CSX.US) and Union Pacific Railways (UNP.US), are optimistic about the freight volume outlook for the second half of the year. The US domestic multimodal transportation and some industrial customer markets are improving.

The construction of data centers has driven flatbed truck transportation, and international air transport is still strong. Housing-related freight remained weak, and consumer-related activities remained generally stable. UBS anticipates that a further decline in capacity in the fourth quarter will lead to a tightening of the vehicle transportation market.

UBS is particularly optimistic about Expeditors International (EXPD.US), whose second-quarter earnings beat expectations by 20%. Analysts also believe that artificial intelligence will create productivity opportunities for the freight forwarding company, including saving $50 million by restructuring its global technology division.

The housing market shows signs of stability

Real estate is another important cyclical market, which has now shown signs of bottoming out and rebounding. Homebuilders report that inventories have improved, demand is stabilizing, and they can begin to reduce incentives that previously kept down profit margins. The building materials company also pointed out that demand is stabilizing, costs are being controlled, and the price cost trend is expected to improve in the second half of the year.

UBS's housing survey found that 34% of respondents plan to buy a home within the next 12 months, which is higher than the historical average of 30%. Approximately 61% of respondents expect to begin a home repair or renovation project, slightly above the historical average of 59%.

PulteGroup (PHM.US) is UBS's most promising home builder, while Advanced Residential Systems (WMS.US) is UBS's preferred construction products and distributor.

Cars are still at risk

The automotive industry is in stark contrast to the continuous improvement in other fields. UBS said that the reshuffle in the Chinese market continues to put pressure on suppliers. Although exports may have increased by about 75%, domestic demand in China fell by more than 20% year over year in the second quarter. Weak demand for European luxury cars in China is another problem.

Analysts reminded investors that growth expectations for 2027 will be lowered, which will put more pressure on suppliers to increase profit margins through internal cost control measures. Free cash flow should support continued share buybacks, while weak industry growth may drive more mergers and acquisitions.

UBS is optimistic about BWA.US (BWA.US) because of its stable performance in the automotive business, growing opportunities outside of the automotive business, and expanding its share repurchase program. General Motors (GM.US) is UBS's preferred automaker, while Amphenol (APH.US) stands out among connector manufacturers, and its artificial intelligence-related revenue increased 170% over the same period last year.

Inflation is an unknown factor in the packaging industry

The packaging company reported that its year-on-year increase in sales reached the highest level in recent times, which once again shows that consumer demand and the short-cycle industrial market remain resilient.

Sales of BALL.US increased 4.3%, Crown Holdings (CCK.US) grew 5%, US Packaging (PKG.US) grew 4.1%, and International Paper (IP.US) grew 1.7%. The problem is rising freight, recycled fiber, labor, and other costs.

UBS said that companies that can maintain continuous sales growth and at the same time raise prices sharply to beat inflation will be the winners. Companies that UBS is optimistic about include American Packaging, Smolfit West Rock (SW.US), and Avery Dennison (AVY.US).

Taken together, the second-quarter results show that industrial investment is gradually moving away from reliance on a small number of AI and data center beneficiaries. UBS believes that the increased breadth of demand, the rationalization of the pricing mechanism, and the improvement of the cyclical terminal market will lay a more diversified foundation for industrial growth in 2027.