UBS's July 2025 Top Stock Picks: A Strategic Guide to Navigating Sector Rotation and AI-Driven Growth

As the global economy continues to pivot through cycles of expansion and contraction, investors must adapt to shifting dynamics while capitalizing on long-term structural trends. In July 2025, UBS has laid out a compelling roadmap for navigating these challenges, emphasizing a dual focus on sector rotation and the accelerating AI infrastructure boom. This article unpacks UBS's top stock picks and the strategic logic behind them, offering insights for investors seeking high-conviction opportunities in a volatile market.

The "COW" Strategy: Retail Resilience in a Shifting Economy

UBS's July 2025 report highlights three retail stocks under the acronym “COW” (Costco, O'Reilly, Walmart), each positioned to thrive in both growth and downturn scenarios.

1. Costco (COST): Despite a forward P/E of 49.0—higher than its peers—Costco's ability to innovate and adapt to macroeconomic shifts makes it a resilient long-term play. The company's membership model and focus on high-margin goods provide stable cash flows, while its digital transformation efforts (including AI-driven inventory management) position it to outperform in both inflationary and deflationary environments.
2. O'Reilly Automotive (ORLY): With a forward P/E of 31.6, this auto parts retailer benefits from tariffs and operational efficiency. UBS notes that ORLY's pricing power allows it to absorb cost increases without eroding margins, a critical advantage in a potential U.S. recession.
3. Walmart (WMT): The retail giant's $37.8 forward P/E reflects its value-driven model and aggressive investments in AI and digital commerce. UBS predicts WMT could reach a $1 trillion market cap by year-end, leveraging its scale to compete with Amazon while navigating supply chain disruptions.

AI Infrastructure: The New Core of Global Capital Flows

UBS's most forward-looking picks are squarely in the AI infrastructure sector, where demand for compute power, memory, and networking is reshaping industries.

• Nvidia (NVDA): At a market cap of $3.8 trillion, Nvidia is the poster child for AI-driven growth. Its GPUs power everything from model training (for OpenAI, Google, and Meta) to robotics and autonomous systems. CEO Jensen Huang's pivot from “chip company” to “AI infrastructure leader” underscores its long-term dominance.
• Broadcom (AVGO): This semiconductor giant is a Tier 1 beneficiary of AI's networking and ASIC demand. With a 16% year-to-date gain and a recent upgrade from HSBC, AVGO's pricing power and customer pipeline suggest sustained growth.
• Micron Technology (MU): As a peripheral beneficiary, Micron's 47% surge in 2025 reflects its critical role in supplying high-performance memory for AI workloads. Its Q3 fiscal 2025 earnings beat and $10.7 billion revenue guidance highlight its momentum.

Sector Rotation and Diversification: Balancing Growth and Value

Beyond retail and AI, UBS's 25 additional U.S. picks span technology, healthcare, and industrials, reflecting a diversified approach to sector rotation. Tech leaders like Amazon (AMZN) and CyberArk (CYBR) benefit from cloud computing and cybersecurity tailwinds, while healthcare names such as Sarepta Therapeutics (SRPT) capitalize on regulatory clarity and gene therapy advancements. Industrial firms like Texas Instruments (TXN) and Keurig Dr Pepper (KDP) are positioned to profit from supply chain normalization and consumer demand shifts.

UBS's strategy emphasizes companies with strong operational execution and competitive moats. For example, Elevance Health's (ELV) digital health platforms align with the AI-driven healthcare transformation, while TXN's analog semiconductors remain indispensable for energy and automotive sectors.

Investment Advice: Positioning for the Long Game

UBS's July 2025 picks reveal a clear thesis: prioritize companies with structural advantages in AI infrastructure and defensive qualities in recession-resistant sectors. For investors, this means:
1. Overweight AI infrastructure: Nvidia, Broadcom, and Micron represent the bedrock of the AI revolution. Their earnings resilience and pricing power make them ideal for long-term portfolios.
2. Balance with retail and industrials: Costco, Walmart, and Texas Instruments offer stability amid macroeconomic uncertainty, with valuations that justify their inclusion even in a rising-rate environment.
3. Monitor regulatory and macro risks: UBS itself is navigating Swiss regulatory changes, highlighting the need for investors to stay attuned to policy shifts that could impact capital efficiency and returns.

Conclusion

UBS's July 2025 stock selections reflect a nuanced understanding of the interplay between AI-driven growth and sector rotation. By focusing on companies that combine innovation with operational resilience, investors can position themselves to outperform in a world of economic volatility. The AI infrastructure boom, in particular, presents a once-in-a-generation opportunity—akin to the internet revolution of the 1990s. For those willing to think long-term, the “COW” stocks and AI enablers highlighted by UBS offer a compelling roadmap to navigate the challenges and opportunities ahead.