AI Industrial Stocks Lead US Equity Earnings Season Q1

The Q1 performance of the U.S. diversified industrial sector indicates that the growth gap between artificial intelligence (AI) industrial companies and traditional industrial companies has widened to an all-time high, highlighting that the AI capital expenditure boom is deeply reshaping the U.S. manufacturing landscape.

According to a research report released by UBS on the 3rd, among the 24 diversified industrial companies that have disclosed their performance, companies with AI exposure reported an average organic growth of 14% in Q1, while non-AI exposure companies only recorded 1%.

The highest growth, led by nVent Electric (NVT.N), soared by +34%, while the lowest, Flowserve (FLS.N), declined by 10%. The gap between the two extremes was a staggering 45 percentage points, setting a record for the largest divergence in the sector's history.

NVT Stands Out This Quarter

nVent, a supplier of data centers and power infrastructure, saw an organic growth of 80% in its infrastructure business in Q1, with data center orders continuing to expand robustly in double digits. UBS points out that the product content per megawatt of data center capacity is approximately $1 million, implying a total addressable market size of over $100 billion in the coming years.

AI Capital Expenditure Cycle "Less Than Halfway"

UBS analysts believe that this round of AI capital expenditure is far from peaking. The report cites a framework calculation that if AI revenue penetration ultimately reaches 10% of global GDP—corresponding to approximately $11 trillion in revenue and $5.5 trillion in profit—backward induction based on a 20% return threshold suggests that global cumulative AI-related capital expenditure could reach **25 trillion to 30 trillion USD**.

Google's statement last week that its capital expenditure will "significantly increase" by 2027 compared to 2026 was seen by UBS as strong evidence for this judgment.

GE Vernova (GEV.N) and Vertiv (VRT.N) are identified as the most direct beneficiaries of the AI capital expenditure mainline, both of which have been given a "buy" rating by UBS.

Johnson Controls (JCI.N) is named as the "next potential big rise stock," with the company scheduled to announce its performance on Wednesday this week and host an analyst day on June 1st. UBS anticipates that both events could act as catalysts for the stock price.

The Risks in the Non-AI Sector Should Not Be Ignored

In the traditional industrial segment, Flowserve's performance significantly undershot expectations, and UBS warns that its weak performance could negatively affect Emerson (EMR.N), which will report its performance next week. The lackluster performance of Ingersoll Rand (IR.N) is also drawing attention—UBS describes it as a "historically high-quality, but significantly discounted" company, and it is worth keeping a close eye on whether it can achieve a positive inflection point.

Overall, UBS believes that the Q1 performance has confirmed the positive undertone of industrial stocks, but the strong divergence between AI and non-AI sectors is unlikely to reverse in the short term. The valuation repair space is primarily concentrated in the core beneficiaries of the AI industry chain.