UBS: U.S. industrial recovery is spreading from AI to broader industries, the “winners list” is released

According to The Zhihui Finance APP, UBS analysts have noted that the U.S. industrial economy is showing broader signs of recovery, with trends of improving demand, increased capital expenditures, and stronger pricing power spreading across more and more sectors.

In a report released on August 11, UBS compiled insights from analyst teams across key industrial sectors, pointing out that second-quarter earnings have reinforced their confidence in the industrial cycle in the second half of 2026 and for the next year. The transportation industry remains healthy, with robust demand in aviation, improving freight activity, and a stabilizing real estate market.

Government and defense spending are also accelerating, and investment in power infrastructure and data centers continues to be a crucial growth driver. Artificial intelligence continues to benefit electrical equipment, connectors, and logistics efficiency, but UBS believes that investor interest is expanding beyond companies considered primary AI beneficiaries.

Noticeable weak spots include the automotive industry and parts of the chemical and packaging sectors, where inflation and commodity costs remain a concern.

Capital expenditure recovery extends beyond artificial intelligence

One of the strongest signals comes from capital expenditures outside of AI-related markets. UBS data shows the median organic growth among non-AI industrial enterprises accelerated to 5% in the second quarter, up from 1% in the first quarter. At the same time, 45% of S&P 500 companies are expected to increase capital spending by more than 10%, compared to 35% a year earlier.

UBS remains optimistic about AI-impacted industrial companies due to the ongoing expansion of the potential market for data centers. However, analysts warn that if capex plans by hyperscale data center operators scale back, valuations of these companies may become more fragile.

Among companies with potential earnings upgrades, UBS highlights 3M (MMM.US), Johnson Controls (JCI.US), Trane Technologies (TT.US), and Parker Hannifin (PH.US). Additionally, with the strengthening cyclical recovery, UBS notes that Honeywell (HON.US), Dover (DOV.US), Crane (CR.US), Ingersoll Rand (IR.US), Emerson Electric (EMR.US), Gates Industrial (GTES.US), and Flowserve (FLS.US) are also worth attention.

Power and data centers support the machinery sector

The machinery, engineering, and construction sectors are also showing signs of improved market conditions. Nearly all companies covered by UBS exceeded expectations in their second quarter results, with the exceptions of AGCO Corporation (AGCO.US) and Cummins (CMI.US). Twelve companies raised performance expectations, while only three revised them downward.

Non-residential construction continues to grow, though the agricultural market is weakening. Truck demand is expected to strengthen in the second half of the year. Short-term trends in the industrial market remain mixed.

Power demand remains a significant driver for Caterpillar (CAT.US), Cummins (CMI.US), and engineering and construction firms. For instance, Quanta Services (PWR.US) has raised expectations for grid and data center technology activities. UBS also believes that private sector investment in fields such as life sciences and semiconductors is accelerating.

UBS believes that United Rentals (URI.US) will benefit from the acceleration of non-residential construction, while Quanta Services has robust grid demand and a strong outlook for bookings, making them top picks in the sector.

Airlines still have pricing power

Airlines performed better than investors expected after earnings reports. UBS says these results have eased concerns that third-quarter revenue growth has peaked or that capacity plans for the fourth quarter are too ambitious. Market demand remains strong, and some airlines may see Q4 revenue outstrip Q3.

Consumer resistance to rising ticket prices remains limited, which UBS sees as a sign of enhanced pricing power in the airline industry. Analysts’ top pick is United Airlines (UAL.US), followed by Delta Air Lines (DAL.US) and Alaska Air Group (ALK.US). UBS also rates American Airlines (AAL.US) and Southwest Airlines (LUV.US) as "Buy".

Freight recovery remains strong

The recovery cycle in transportation is also progressing as planned, albeit at an uneven pace. Less-than-truckload freight companies reported better-than-usual volume trends in July, and rail companies such as CSX Corporation (CSX.US) and Union Pacific (UNP.US) are optimistic about freight prospects for the second half. The U.S. domestic intermodal and certain industrial customer markets are improving.

Data center construction has boosted flatbed trucking, and international air freight remains strong. Freight related to housing remains weak, while consumer-related activities are generally steady. UBS expects further tightening in the truckload market in Q4 as capacity continues to decrease.

UBS is particularly bullish on Expeditors International (EXPD.US), which reported Q2 earnings 20% above expectations. Analysts also see AI creating productivity opportunities for this freight forwarder, including saving $50 million by restructuring its global technology division.

The housing market shows signs of stabilization

Real estate is another important cyclical market now showing signs of a rebound from the bottom. Homebuilders report improved inventories, stabilized demand, and the ability to start reducing incentives that had been pressuring profit margins. Building material companies also report stable demand and controlled costs, with improved price-cost trends expected in the second half.

UBS’s housing survey found that 34% of respondents plan to purchase a home in the next 12 months, above the historical average of 30%. About 61% expect to start home repairs or renovations, slightly above the 59% historical average.

PulteGroup (PHM.US) is UBS’s top pick among homebuilders, while Advanced Drainage Systems (WMS.US) is UBS’s preferred building products and distribution stock.

The auto sector still faces risks

The auto industry stands in sharp contrast to the improving outlook in other fields. UBS notes that ongoing reshuffling in the China market continues to pressure suppliers. Although exports may have grown by about 75%, domestic demand in China fell over 20% year-on-year in Q2. Weak demand for European luxury cars in China is another problem.

Analysts caution investors that 2027 growth forecasts will be revised downward, putting more pressure on suppliers to boost margins through internal cost controls. Free cash flow should support continued share buybacks, while sluggish industry growth may trigger further M&A activity.

UBS favors BorgWarner (BWA.US) for stable auto business performance, expanding opportunities beyond automotive, and an enlarged share repurchase plan. General Motors (GM.US) is UBS’s preferred automaker, while Amphenol (APH.US) stands out among connector makers with AI-related revenue up 170% year-over-year.

Inflation remains an unknown for the packaging sector

Packaging companies report the highest year-on-year volume growth in recent times, again underlining the resilience of consumer and short-cycle industrial demand.

Ball Corporation (BALL.US) saw volumes rise 4.3%, Crown Holdings (CCK.US) grew by 5%, Packaging Corporation of America (PKG.US) was up 4.1%, and International Paper (IP.US) rose 1.7%. The challenge remains the rising costs of freight, recycled fiber, labor, and other inputs.

UBS states that companies able to sustain strong volume growth and simultaneously raise prices sufficiently to outpace inflation will be winners. UBS’s favored picks include Packaging Corporation of America, Smurfit Kappa (SW.US), and Avery Dennison (AVY.US).

In summary, second-quarter results show that industrial investment is gradually moving away from reliance on a few AI and data center beneficiaries. UBS believes that broader demand, more rational pricing, and improvements in cyclical end markets will lay a more diversified foundation for industrial growth by 2027.