UBS strategist Gerry Fowler argues the market is underpricing the length of the AI cycle. Hyperscalers trading under 20x earnings with 10–20% revenue growth present an attractive entry point, he said. Fowler anticipates a 2027 inflection as data-center deliveries unlock backlogs and revenue catches up to capital expenditure. While Alphabet’s negative free cash flow recently unsettled the AI trade, Fowler notes the sector is shifting beyond first-wave beneficiaries. Infrastructure suppliers like cable and power equipment makers are sold out through 2027–2028, limiting earnings upgrades. The next leg of the trade, he argues, will come from global and European industrials supporting new factory construction. ASML Holding NV, supplying memory makers like Samsung and SK Hynix, is seeing upgrades as capacity expands. Fowler sees broad industrial momentum in Europe as the AI cycle matures.
Cash remains available but has shifted toward memory suppliers now returning capital to investors. The AI trade is evolving from data-center plays to industrial enablers, with Fowler viewing current valuations as mispriced for the cycle’s duration.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing