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Why UBS Thinks Corporate Earnings—Not FOMO—Are Powering the Equity Rally
UBS forecasts 21% earnings growth for global equities in 2026 and about 15% growth for major Eurozone indexes, supporting its view that profits—not just speculation—are driving the rally. The strongest evidence is the combination of broad earnings momentum and real demand for data center infrastructure, semiconducto...
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Key takeaways
- UBS forecasts 21% earnings growth for global equities in 2026 and about 15% growth for major Eurozone indexes, supporting its view that profits—not just speculation—are driving the rally.
- The strongest evidence is the combination of broad earnings momentum and real demand for data center infrastructure, semiconductors, power generation equipment and construction machinery.
- South Korea shows why both sides of the argument matter: AI linked chip profits powered a dramatic rally, but leveraged trading also helped produce extreme volatility.
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openai.comCreate a landscape editorial hero image for this Studio Global article: What is UBS’s argument that the historic global equity bull market is being driven by record corporate earnings rather than speculative hype. Article summary: UBS’s core case is that this is an earnings-led, investment-cycle bull market: companies are producing unusually strong and broad-based profit growth, while AI infrastructure and security-related capital spending are gen. Topic tags: general, news, general web, government, user generated. Style: premium digital editorial illustration, source-backed research mood, clean composition, high detail, modern web publication hero. Use reference image context only for broad subject, composition, and topical grounding; do not copy the exact image. Avoid: logos, brand marks, copyrighted characters, real person likenesses, fake screenshots, UI text, readable text, watermar
UBS’s central argument is straightforward: the global equity rally is being supported by rising corporate profits and a real investment cycle, rather than by investors buying stocks solely because prices are rising. The bank’s August outlook forecasts 21% earnings growth for global equities in 2026, followed by another solid year in 2027. It also sees roughly 10% upside for global stocks through mid-2027. 12
That is a meaningful distinction, but not a guarantee that markets are safe. Strong earnings can justify higher prices while valuations remain vulnerable to interest rates, leverage, concentration and disappointing returns on artificial-intelligence investment.
UBS’s earnings-led bull-market thesis
The argument rests on the idea that profits are doing more of the work than valuation expansion. If companies are increasing earnings, improving margins or beating expectations, rising share prices have a stronger fundamental basis than they would in a rally driven mainly by enthusiasm and fear of missing out.
UBS’s latest research points to strong profit momentum across global markets. Its August strategy guide forecasts 21% earnings growth for global equities in 2026, with another solid year expected in 2027. The bank also forecasts 38% earnings growth for the Nasdaq 100 in 2026, although that figure highlights how heavily the broader thesis still depends on technology-related profits. 12
For the United States, UBS previously raised its 2026 S&P 500 earnings-per-share forecast to $335, representing 20% year-over-year growth, up from an earlier 11% estimate. 6 On August 21, UBS Global Wealth Management raised its year-end S&P 500 target to 8,100 from 7,900, citing a stronger earnings outlook and confidence in continued profit growth.
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The forecasts are therefore not based only on investors paying a higher multiple for the same earnings. They assume that the earnings themselves will continue to rise. That makes future profit revisions one of the most important tests of the bullish case.
The Eurozone upgrade suggests greater breadth
A rally dominated by a handful of US technology companies would be easier to dismiss as narrow or speculative. UBS’s upgrade to its Eurozone earnings outlook gives the bank a broader piece of evidence.
Following stronger and more widespread second-quarter results, UBS raised its 2026 earnings-growth forecast for both the Euro Stoxx 50 and broader Eurozone indexes to approximately 15%. The Euro Stoxx 50 forecast was raised from 8%, while the broader Eurozone estimate increased from 11%. UBS kept its 2027 forecast at 15%. 21
Another report on the same results cycle said Eurozone earnings were growing by around 22% year over year, or roughly 11% excluding energy, with cost discipline supporting margins and revenue growth expected to contribute more as manufacturing activity improves. 22
This does not prove that every region or sector is participating equally. It does, however, support UBS’s contention that the profit cycle is spreading beyond a small group of US mega-cap companies.
AI investment is creating visible demand—but also concentration risk
UBS describes artificial intelligence as an investment and infrastructure cycle, not merely a stock-market story. Demand is appearing in data centers, semiconductors, electricity generation and construction equipment.
When UBS raised its S&P 500 forecast in May, it cited resilient consumer spending and strong demand for data-center infrastructure. 2 In August, the bank pointed to Palantir’s higher annual revenue forecast and Caterpillar’s improved revenue-growth outlook as examples of AI-related demand reaching beyond chip designers and cloud companies. Data-center construction was helping drive demand for Caterpillar’s power-generation and construction equipment.
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That transmission mechanism matters. If AI spending produces orders, revenue and eventually productivity gains across several industries, it can support a wider earnings cycle. If spending remains concentrated among a small group of technology companies—or if customers fail to earn acceptable returns on the infrastructure being built—the same investment boom could become a source of disappointment.
UBS itself acknowledges that AI hardware remains supported by strong earnings growth while warning that crowded positioning and rising leverage justify diversification. 5 Its July market commentary also identified potential disappointment in AI capital expenditure or monetization as a risk to global equities.
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South Korea is both evidence for UBS and a warning against complacency
South Korea offers one of the clearest examples of the debate. The KOSPI’s rally was closely tied to AI-related semiconductor demand, with Samsung Electronics and SK Hynix—major memory-chip companies—driving the index higher. In May, the KOSPI crossed 7,000 for the first time as the AI-powered semiconductor rally pushed Samsung’s market capitalization above $1 trillion. 36
The rebound was not purely a story of speculative pricing. Coverage of the market has linked the rally to strong earnings expectations and demand for memory chips used in the AI supply chain. 32 But Korea also demonstrates how fundamental enthusiasm can coexist with speculation.
Reuters reported that leveraged bets on South Korean AI stocks contributed to exceptional volatility. The KOSPI fell about 20% during July while remaining up 62% for the year at that point. 34 After reaching a July 30 low, it later rebounded roughly 22% as the global AI trade recovered, led by Samsung and SK Hynix.
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The lesson is not that earnings are irrelevant. It is that genuine earnings growth can attract leverage, momentum trading and concentrated positioning. A market can be fundamentally supported and still experience a severe drawdown.
Why energy and non-technology profits matter
UBS’s broader argument requires profits to extend beyond the most visible AI beneficiaries. Its research has described US earnings strength as broad, with the breadth and magnitude of second-quarter earnings beats better than historical averages. 3
Energy is one area investors may watch when assessing that breadth, but the sector also illustrates the limits of an earnings-only analysis. Higher oil prices can lift energy producers’ profits while increasing costs for consumers and raising inflation pressure. UBS has warned that a slower-than-expected normalization of energy supply could keep Brent crude supported and complicate the inflation outlook. 3
That creates a potential conflict: energy-sector earnings can help aggregate profits while higher energy costs make interest-rate conditions less favorable for the rest of the market.
Earnings are powerful, but interest rates set the valuation ceiling
Equity prices reflect both expected earnings and the rate used to discount those future earnings. Even an excellent earnings cycle may not prevent stock prices from falling if long-term bond yields rise enough to reduce the value investors assign to future profits.
UBS Asset Management argues that the bull market can survive higher rates because earnings growth is strong and broadening. At the same time, it expects US core inflation to remain sticky and elevated, keeping the possibility of further Federal Reserve rate hikes on the table. 5
The bond market has already become a central risk. Reuters reported that Kevin Warsh’s first Jackson Hole keynote, scheduled for August 28, was drawing attention because investors wanted guidance on rising bond yields, inflation and the Federal Reserve’s independence. 47 Long-term Treasury yields had come under pressure, with the 30-year yield reaching its highest level since 2007 at one point, according to Bloomberg.
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Higher yields can compress equity valuations and increase borrowing costs for households and companies. They can also make bonds more attractive relative to stocks. In practical terms, UBS’s earnings thesis works best if profit growth remains strong enough to offset the valuation pressure from higher rates.
The strongest challenge to UBS’s view
The available evidence supports a more nuanced conclusion than either “this is a bubble” or “earnings make the rally safe.” Several risks could undermine the bullish case:
- Long-term yields could rise further. Sticky inflation, large fiscal deficits, energy prices and AI infrastructure spending are all contributing to bond-market pressure.
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- AI exposure is concentrated. Strong results from a small number of chip, cloud and software companies can lift indexes, but they can also leave the market dependent on a narrow group of earnings forecasts.
- Leverage can magnify ordinary volatility. South Korea’s experience shows how forced selling and leveraged positions can overwhelm fundamentals in the short term.
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- AI spending may disappoint on monetization. The infrastructure boom is real, but the investment case ultimately requires revenues, margins and productivity gains to justify the capital being deployed. UBS has identified weaker AI capital expenditure or monetization as a market risk.
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- Energy shocks can work in opposite directions. They may increase producers’ profits while raising inflation and making interest rates more restrictive.
- Forecasts can be revised down. UBS’s S&P 500 target depends on unusually strong earnings assumptions. If earnings growth slows, the market would face both weaker fundamentals and a potentially less attractive valuation.
Bottom line
UBS has a credible fundamental case that the global equity bull market is being powered by corporate earnings and investment rather than by pure FOMO. Its strongest evidence is the combination of a 21% global earnings-growth forecast, a sharply higher Eurozone outlook, strong US earnings momentum and visible demand tied to data-center construction and AI infrastructure. 12
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But the evidence does not eliminate bubble risk. South Korea shows that real AI earnings can coexist with leverage and extreme volatility, while rising long-term yields can damage valuations even when profits remain strong. 34
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The practical test for UBS’s thesis is whether earnings continue to broaden, whether AI investment produces durable revenue and productivity gains, and whether bond yields stabilize. If those conditions hold, the rally has a stronger foundation than a purely speculative boom. If they fail, strong recent earnings may not be enough to prevent a sharp technology-led correction.
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What is the short answer to "Why UBS Thinks Corporate Earnings—Not FOMO—Are Powering the Equity Rally"?
UBS forecasts 21% earnings growth for global equities in 2026 and about 15% growth for major Eurozone indexes, supporting its view that profits—not just speculation—are driving the rally.
What are the key points to validate first?
UBS forecasts 21% earnings growth for global equities in 2026 and about 15% growth for major Eurozone indexes, supporting its view that profits—not just speculation—are driving the rally. The strongest evidence is the combination of broad earnings momentum and real demand for data center infrastructure, semiconductors, power generation equipment and construction machinery.
What should I do next in practice?
South Korea shows why both sides of the argument matter: AI linked chip profits powered a dramatic rally, but leveraged trading also helped produce extreme volatility.