UBS Profit Climbs As Investment Banking Rebounds; CEO Says The AI Pullback Is Healthy

UBS reported stronger second-quarter earnings on Wednesday, bolstered by the resilience of its investment banking and wealth management businesses.

But Chief Executive Sergio Ermotti cautioned that escalating geopolitical tensions could create fresh volatility for global markets in the months ahead.

The Swiss lender posted net profit attributable to shareholders of $2.8 billion for the three months ended June, broadly matching analysts’ expectations in an LSEG consensus poll.

Pre-tax profit rose 64% year over year to $3.6 billion, reflecting stronger client activity across investment banking, capital markets and wealth management as market conditions improved during the quarter.

The results reinforce the recovery in global investment banking after two years of subdued dealmaking, with improving market sentiment fueling mergers and acquisitions, equity offerings and debt issuance.

Speaking to CNBC’s Squawk Box Europe, Ermotti said UBS maintained strong momentum across its businesses during the quarter, pointing to robust client activity despite an increasingly uncertain macroeconomic backdrop.

He said the bank entered the second half with a “very good” pipeline across investment banking, mergers and acquisitions and capital markets, while leveraged finance, debt capital markets and equities businesses all delivered solid performances.

The CEO also highlighted a resurgence in initial public offerings, describing equity capital markets as “vibrant.”

UBS played a leading role in several high-profile listings during the quarter, including SpaceX’s landmark stock market debut, one of the year’s most closely watched IPOs.

Reflecting confidence in its capital position and earnings outlook, UBS announced a new $3 billion share repurchase program, beginning with $1 billion in buybacks over the next three months. Share buybacks reduce the number of outstanding shares, potentially increasing earnings per share while returning excess capital to shareholders.

Investors welcomed the results, with UBS shares rising 2.5% in morning trading.

Despite the upbeat earnings, Ermotti warned that geopolitical developments remain the biggest source of uncertainty for financial markets.

“Clearly the ongoing volatility we see coming from the geopolitical front may create some kind of temporary headwinds,” he told CNBC.

“But the momentum is good — we are well-positioned to capture the benefits of that.”

Investors have been grappling with heightened geopolitical risks, including renewed conflict in the Middle East, trade tensions and uncertainty surrounding global monetary policy, all of which have contributed to increased market volatility in recent weeks.

Ermotti also addressed the recent pullback in artificial intelligence-related stocks, noting that the correction was a natural consequence of the sector’s extraordinary gains.

Following months of rapid advances that pushed valuations of AI-linked companies to record levels, semiconductor manufacturers and other technology stocks have experienced sharp swings as investors reassessed earnings expectations, competitive pressures and the sustainability of massive AI infrastructure spending.

According to Ermotti, the recent decline should be viewed as a healthy adjustment rather than a structural shift in the AI investment theme.

“Given the pace and scope of the increasing market caps and concentration over the last three-to-four months, a correction was to be expected,” he said.

“It’s only healthy to see it. We advise clients in that context always to really diversify.”

The UBS chief said artificial intelligence and the infrastructure supporting it will remain one of the dominant investment themes over the coming years, but argued that the next phase of the AI cycle will extend beyond the technology companies that initially drove the rally.

Rather than remaining concentrated among chipmakers, cloud computing providers and AI model developers, Ermotti expects productivity gains from artificial intelligence to spread across industries including financial services, healthcare, manufacturing, industrials and consumer businesses.

“AI and its supporting infrastructure will continue to remain a big factor,” he said, adding that the technology’s economic benefits are likely to be felt across a much broader range of sectors.

“This is a huge opportunity that we can give to our clients to diversify and invest for the future.”

Ermotti’s assertion echoes a growing view on Wall Street that the AI investment story is entering a new stage. While companies building AI infrastructure continue to attract significant investment, analysts expect businesses that successfully integrate AI into their operations to become the next drivers of earnings growth through improved productivity, lower costs and expanding profit margins.