A growing wave of artificial intelligence adoption is prompting one of the world’s largest wealth managers to rethink how portfolios should be constructed in the coming decade. UBS Wealth Management is advising clients to rotate investments away from software-driven technology companies toward businesses rooted in the physical economy including power generation, mining, industrial equipment and infrastructure.

Speaking at a financial industry conference in Miami Beach, Ulrike Hoffmann-Burchardi, global head of equities and CIO for the Americas at UBS Wealth Management, described the strategy as moving from “bits to atoms.” The phrase captures a shift from intangible digital businesses toward companies that produce or control real-world assets required to sustain economic activity.

The reassessment comes after a three-year rally dominated by artificial intelligence enthusiasm, which pushed valuations of technology firms especially software companies to historically elevated levels. According to UBS, some of those businesses now face structural disruption from the very technology that initially fueled their rise.

Artificial intelligence tools capable of writing code, automating workflows and even replicating professional services are beginning to challenge software providers, consulting firms and legal services that rely heavily on digital intellectual property. As these tools improve, the competitive moat around many software business models may narrow, raising uncertainty about future pricing power and profitability.

UBS has already downgraded the information technology and communication services sectors within the S&P 500 while increasing exposure to energy, materials and industrial companies. Market data suggests that this rotation is already underway. Since late October, technology stocks in the benchmark index have declined while energy and materials producers have rallied sharply, reflecting investor repositioning toward sectors tied to physical demand.

One reason cited for the shift is that tangible assets are difficult to replicate through software alone. Power plants, mines, transmission networks and manufacturing facilities remain essential inputs to economic growth regardless of digital transformation. As AI expands computing demand, electricity consumption and raw material requirements are expected to rise significantly, potentially benefiting these sectors.

Hoffmann-Burchardi also warned that businesses built primarily on intangible assets may need to command higher risk premiums in an AI-driven world. Unlike previous technological shifts, artificial intelligence systems are self-learning and evolving rapidly, making disruption timelines unpredictable. This raises uncertainty for long-duration investments such as private equity and high-growth technology ventures whose valuations depend on distant future earnings.

At the same time, UBS remains broadly constructive on equities overall. The firm expects what it calls a “broadening” of market leadership, where gains are no longer concentrated in a handful of mega-cap technology companies but spread across sectors. Supportive macroeconomic conditions including fiscal stimulus across major economies and continued monetary easing by central banks are seen as key drivers.

In the United States, both fiscal expansion and accommodative monetary policy are operating simultaneously, an unusual combination outside crisis periods. UBS believes this policy mix could lift economic growth and corporate earnings, potentially sustaining equity markets even as sector leadership changes.

Geographic diversification is another element of the strategy. After years of US market dominance, the bank is encouraging investors to consider emerging markets as global growth stabilizes. However, it still views the US as structurally advantaged due to its leadership in innovation, capital markets and sectors such as AI and healthcare.

A critical unresolved question is whether massive capital expenditure on artificial intelligence infrastructure will ultimately generate sufficient returns to justify current valuations. If productivity gains fall short of expectations, technology stocks could face prolonged multiple compression.

For India, the implications are significant. A global rotation toward physical assets could channel capital into sectors where the country has strong representation, including energy, metals, infrastructure and manufacturing. Indian power producers, mining firms and industrial companies may benefit indirectly if global investors rebalance portfolios toward tangible-economy plays.

Conversely, India’s large IT services industry could face valuation pressure if investors reassess long-term growth prospects for software-centric businesses. While outsourcing firms are adopting AI tools to improve productivity, the technology also has the potential to automate parts of their service offerings, creating both opportunity and risk.