UBS's Holt unit says artificial intelligence infrastructure stocks are ready to outperform traditional hyperscalers.
An "extraordinary" shift is happening in the technology sector, with artificial intelligence infrastructure stocks set to vastly outperform most of the Magnificent Seven technology companies, according to UBS.
Analysts at the Swiss investment bank's research arm, Holt, led by John Talbott said there's been a notable gap between memory stocks, like Samsung (KR:005930), SK Hynix (KR:000660) and Micron Technology $(MU)$, and AI hyperscalers, such as Amazon (AMZN), Alphabet $(GOOGL)$ and Meta $(META)$, in a note on Thursday.
Forecasts for cash flow return on investment (CFROI), which is used to assess the level of economic return compared with the cost of capital, have accelerated for AI infrastructure companies, while declining by 200 basis points in the past two years for big tech groups as AI spending commitments have soared, they noted.
For Talbott and his team, that group of infrastructure companies includes U.S. technology hardware - excluding Apple - and semiconductor and semiconductor equipment industry groups and global semiconductors, worth more than $1 trillion in market capitalization.
Investors have grown increasingly worried about whether high capital expenditures will yield strong returns, with Magnificent Seven stocks, including Apple $(AAPL)$, Microsoft $(MSFT)$ and Tesla $(TSLA)$, down just over 1%, based on the Roundhill Magnificent Seven ETF MAGS, since the start of the year.
Even more significant, economic profit - Holt's framework's measure for value creation - surged from about $200 billion in 2023 to a forecast $1.4 trillion in 2027 - a jump of 600% - for that infrastructure sector. That same metric for hyperscalers has increased from just $200 billion to an expected $400 billion next year. Memory stocks alone are thought to be responsible for half of the projected gains in infrastructure.
"The magnitude of the shift is extraordinary," the analysts said.
Memory companies made losses in just 2023, but on forecasts for next year, rank within the top five value creators in the global tech, media and telecommunications (TMT) industry, only coming behind Nvidia (NVDA), they added.
Three years ago, Holt's framework ranked Apple, Microsoft (MSFT), Alphabet, Meta and Amazon as the top five economic profit generators in the industry. For 2027, Nvidia, Samsung, SK Hynix, Micron and Alphabet are in the lead.
"It is hard to overstate how unusual this is: a historically cyclical, commoditized segment moving from value destruction to the top of the global league table in just a few years," Talbott said. "Just as important, it underscores the pace of this AI cycle - value creation leadership is rotating faster than ever in TMT."
-Nora Redmond
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July 03, 2026 11:41 ET (15:41 GMT)
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