UBS Equities-Global Equity Strategy _The Theme-ometer Expect even more f...

ab17 June 2025Global ResearchGlobal Equity StrategyThe Theme-ometer: Expect even more from AI Power and SoftwareA market of themesWe leverage our REVS framework on a suite of thematic equity stock lists to objectively assess which themes should be more or less favored. REVS is our quantamental stock selection framework. Our philosophy is that stock prices are impacted by the macroeconomic regime (R), the operating environment for earnings (E), the market assessment of valuations (V), and sentiment (S). We have built models that give us a comprehensive tactical framework (2-6 months). Each model backtests well and they work well together. We have scores on global stocks and can aggregate them to countries, sectors, and in this note, we assess equity themes.Top themes and Top stocks EU Defense Spending remains the top scoring thematic basket in our rankings despite stretched valuations. Large fiscal announcements earlier this year have supported the theme and driven positive earnings revisions momentum. However, we do see risk of these revisions slowing, which could place the valuation overhang at the forefront for investors. Dassault Aviation and Thales SA are both among the higher ranking names that still appear attractive on our Valuation score. We see a clearer path to upside for other European themes from here, such as EU Electrification, EU Renewables, and German Fiscal Reform on similar tailwinds.US AI Winners remain positive in our scorecard again this month, while the peripheral AI Power and AI Software Pioneers themes continue to climb. While we continue to have concerns over the capex to sales of hyperscalers (~22%) over the long-term, the theme scores as attractive in the near-term according to our framework. Broadcom and Meta Platforms are the highest scoring names within the theme. While questions around the return on capex for hyperscalers remain, one way to maintain exposure to AI is on the surrounding themes. Data readiness has been a key topic and we believe that along with AI Power, our AI Software Pioneers theme will continue to gain momentum. ServiceNow and Snowflake (link) both screen as attractive across our R.E.V.S. metrics.Questions around the health of the consumer remain as US Housing, Consumer Cyclicals, and EU Luxury Goods are among the worst scoring themes again this month, hurt by Regime, Earnings, and Sentiment scores. We still see risks to the consumer as both Consumer Discretionary and Cunsumer Staples now rank in the bottom half of our Sector Scorecard in the US. Comm Services and Utilities remain the highest ranking sectors broadly across regions according to our scorecard. Industrials continues to improve amidst budget catalysts. Media & Entertainment, Comm & Professional Srvcs, and Telecoms are among the most attractive Industry Groups in the S&P 500. HH & Personal Products, Chemicals, and Cons Dur & Apparel are among the worst scoring Industry Groups driven by Earnings, Sentiment, and Regime scores. Spai