As technology stocks face a selloff, capital is accelerating its flow into large-cap pharmaceutical stocks. Biopharma giants such as AbbVie and Eli Lilly saw their share prices approach historic highs this week, reflecting a clear signal that investors are rotating into defensive assets amid turbulence in AI-themed stocks.
On Thursday, the State Street Health Care Select Sector SPDR ETF hit an all-time high of $177.19, gaining 5.6% over the past five trading sessions. At the same time, investors also poured into consumer staples and U.S. Treasuries. The trigger was a collective slump in AI-related stocks, as market concerns over the scale of AI capital expenditure and slowing revenue growth at Anthropic continued to build.
Eli Lilly closed up 3.4% on Thursday, marking its third-highest closing price in history. AbbVie closed at $283.40, its second-highest ever, just one day after setting a record of $283.48. Neither company had major clinical data or M&A news to drive the gains, benefiting purely from defensive rotation of capital. Gilead Sciences and Amgen rose 7.7% and 7.2% respectively over the past five trading days, Merck gained 2.3%, and UnitedHealth Group surged 9.1% on strong third-quarter results.
Capital rotation: AI retreat, pharma takes over
According to MarketWatch, the high volatility of AI-themed stocks is prompting a reassessment of the allocation value of large-cap pharmaceutical stocks. The core appeal of these companies lies in stable, predictable earnings growth, sustained investment in R&D pipelines, and extension of core drug patent lifecycles, offering a risk-reward profile distinctly different from tech stocks.
While AI-related stocks come under pressure from capital expenditure controversies and downward revisions to growth expectations, investors are simultaneously turning to consumer staples and government bonds. The defensive attributes of the pharmaceutical sector are thus concentratedly reflected. The State Street Health Care ETF touching an all-time high is a direct reflection of this round of capital reallocation.
Eli Lilly is one of the core targets in this pharmaceutical sector rally. With its dominant position in the GLP-1 weight-loss drug market, Eli Lilly has become one of the most widely recognized success stories in the industry. Notably, this week's share price gain had no specific catalyst, but rather exhibited a pattern: whenever AI-themed stocks face headwinds or the industry hits a major milestone, Eli Lilly's stock tends to rise accordingly.
Even with the breakthrough success of its GLP-1 business, Eli Lilly maintains an intensive forward-looking strategy. According to CEO Dave Ricks, the company has completed 40 deals this year worth a total of $20 billion, and two new weight-loss drugs are approaching regulatory approval. This strategic commitment to continue betting on the future even after success further reinforces market confidence in its long-term growth.
AbbVie's strong performance has more specific fundamental support. The latest data for the subcutaneous formulation of its core drug Skyrizi shows that the formulation demonstrated confirmed efficacy in Crohn's disease patients after 24 weeks of treatment, laying the foundation for its application to the U.S. Food and Drug Administration (FDA) for approval, while potentially extending the drug's patent protection period.
According to AbbVie executives, the subcutaneous formulation is expected to bring "substantial" incremental sales. Compared with the existing clinic-based injection method, the subcutaneous formulation allows patients to self-administer at home, significantly improving convenience. Skyrizi generated $17.6 billion in sales last year and is widely used for patients with inflammatory bowel disease, Crohn's disease, and other autoimmune conditions.
Developing subcutaneous versions of core drugs has become an important strategy for biopharmaceutical companies to extend patent lifecycles, and AbbVie's move has a clear commercial logic.
However, it is worth noting that the strength of large-cap pharmaceutical stocks does not mean the entire pharmaceutical sector is thriving. The high-risk, high-reward biotech segment is showing clear divergence. The State Street SPDR S&P Biotech ETF fell 2.8% over the past month, after the sector had experienced a long-awaited recovery earlier in the year.
The performance of the biotech sector is highly correlated with interest rate trends and financing conditions, and its fragility stands in sharp contrast to the stability of large diversified pharmaceutical companies. In the current market environment, investor preference is concentrating on the latter—a certainty premium is becoming the core logic of this pharmaceutical rally.
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