Speaker · Updated
Paul Hsiao: latest market views
UBS Chief Investment Office, Global Wealth Management
Summary
Paul Hsiao is a Senior Asset Allocation Strategist for the Americas in the UBS Chief Investment Office, an author of the UBS House View and the CEO Macro Briefing Book, who previously worked at Credit Suisse Asset Management and as an economist at Boston Consulting Group.
Chorus has 15 views from Paul Hsiao across 2 episodes on UBS On-Air since October 21, 2026.
What they talk about most
- AI infrastructure & data centers · 4
- US Treasuries & yields · 2
- Credit markets · 1
- Cybersecurity · 1
- Market sentiment, positioning & volatility · 1
- AI & jobs · 1
- AI regulation & safety · 1
- Enterprise AI adoption & AI software · 1
- IPOs, M&A & deal activity · 1
- US growth & recession risk · 1
- US rates & the Fed · 1
The latest views
Newest first. Every quote is checked against the episode's transcript.
AI infrastructure & data centers
AI capex is supply-driven and far less sensitive to higher interest rates than in past cycles.
Rates have risen at both the short and long end in 2026, which normally restricts economic activity by raising borrowing costs and required returns. Paul argues this cycle differs because AI spending is supply-driven, so much less of it depends on interest rates. That is why hyperscalers can announce hundreds of billions of dollars of capex toward $1 trillion a year despite higher rates.
“The difference between this cycle and last cycle with all everything talking about AI is that it's really supply driven. So much less of it is dependent on interest rates than before.”at 3:03
UBS On-Air: Top of the Morning: The AI Economy 4Q26 update - Part 1 ·
AI infrastructure & data centers
Hyperscaler capex to be revised sharply higher: about $700-800B in 2026, rising toward $1T a year by 2028-29.
Market consensus for 2026 hyperscaler capex was about $500-600B, but year-to-date spending is tracking a $700-800B pace. Paul expects spending to accelerate to about $1 trillion per year in 2028 and 2029. He frames this as a supply-driven build-out that announced plans already point to, so he expects upward revisions to continue.
“hyperscaler CapEx intention will revise significantly higher this year... year to date it's really looking more on track to a 700 to $800,000,000,000 pace in 2026 and then going into 2028 and 2029 we expect that to accelerate to 1,000,000,000,000 per year.”at 3:27
UBS On-Air: Top of the Morning: The AI Economy 4Q26 update - Part 1 ·
AI infrastructure & data centers
Hyperscaler free cash flow turns negative through 2027, forcing reliance on equity and bond markets to fund AI build-out.
Paul projects total free cash flow for some major hyperscalers to dip into negative territory in 2026, stay negative in 2027, and turn positive only in 2028. Cash on hand and free cash flow were expected to fund the data center build-out, but they can no longer cover rising investment needs, so hyperscalers must tap equity or bond markets. The key risk he flags is that if long rates stay high, the interest embedded in hyperscaler bond issuance rises, making funding harder for some companies through 2027 and 2028.
“we do see free cash flow in total for some of the major hyperscalers dipping into negative territory this year, staying in negative territory in 2027 before going back into positive territory in 2028. So what that means is they can't just rely on the free cash flow to finance more and more investment needs.”at 4:23
UBS On-Air: Top of the Morning: The AI Economy 4Q26 update - Part 1 ·
Market sentiment, positioning & volatility
Semis were overcrowded; money rotated in Q3 into hyperscalers and software as a safer AI trade.
Semiconductors were already a crowded trade going into 2026. Power stocks sold off in August after regulatory concerns, such as Texas pausing data center demand. Investors then rotated into hyperscalers, which Paul sees as a safe haven within AI given their revenues and high cash balances, and into software, which had been unlocked by equity markets early in the year. Paul describes this as a shift from a crowded part of the AI trade to a more defensive part rather than a fade of the AI trade.
“investors still remain concentrated in AI, but we did see a pretty significant rotation from semis into hyperscalers and software... semis was already a crowded trade”at 5:38
UBS On-Air: Top of the Morning: The AI Economy 4Q26 update - Part 1 ·
Credit spreads stay range-bound and AI-linked bond demand robust; no repricing of hyperscaler credit risk.
Bond spreads remained range-bound in Q3, and demand for AI-linked debt stayed strong. Bond investors have not repriced risk, so the market has not changed its view on hyperscaler creditworthiness from Q2 to Q3. Paul treats this as the credit backdrop to watch as hyperscalers keep issuing debt.
“bond spreads remain [range] bound and demand from AI linked paper remains robust. So we're not seeing that sort of repricing of risk... The bond market hasn't changed its opinions on the credibility of these hyperscalers in Q3 compared to Q2.”at 6:54
UBS On-Air: Top of the Morning: The AI Economy 4Q26 update - Part 1 ·
Cybersecurity is underpriced given AI-enabled attacks on large institutions and the need for defenses.
Over the summer, concerns emerged that models from OpenAI and Google's Gemini could exploit vulnerabilities at large institutions. Paul argues that this security risk is underpriced in the market. He points to two questions for 2027: whether a more robust federal AI framework will address security, and whether cybersecurity companies can design defenses that other companies can use to mitigate AI-driven exposure.
“I think the underpriced in the market really is security... I think over the summer, we've heard some concerns that OpenAI and Gemini, we've had some of these models being able to take advantage of some vulnerabilities in some large institutions.”at 8:52
UBS On-Air: Top of the Morning: The AI Economy 4Q26 update - Part 1 ·
US economy not late-cycle; moderate Q4 slowdown without recession, supported by strong nominal growth.
Late-cycle indicators (high rates, elevated inflation, narrow stock leadership) do not mean the economy is necessarily late-cycle. Cycles have lengthened: the 2010-2019 expansion lasted almost a decade and was ended by a pandemic rather than policy rates, so cycles 'can't die of old age'. The Fed believes current rates are high enough to slow growth by removing accommodation without causing a recession. Nominal growth is around 5-6%, up about 56% since 2020 versus 2019 (roughly two UKs of added economy). This is a supply-driven cycle, which makes the economy less interest-rate sensitive. The team expects a moderate economic decline into Q4 without a recession, which is generally good for the earnings backdrop.
“And that's generally our point of view. The economy, we think, will moderately decline going to q four, but not necessarily slow down where it will cause a recession.”at 2:36
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
Higher short and long yields have compressed S&P 500 valuations, tightening conditions for many businesses.
Hawkish rate expectations priced in over the summer, alongside fiscal concerns, pushed both the short and long ends of the yield curve higher. That led to valuation compression in the S&P 500. For many businesses this has tightened financial conditions by roughly the equivalent of one rate hike.
“we had both the short end and long end going higher. That has led to valuation compression in the S and P 500.”at 4:01
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
Fed likely pauses October, makes a dovish December hike, then pauses into 2027 versus market's two hikes.
Recent weaker jobs numbers give the Fed room to pause in October. The team is more dovish than the market and expects the Fed to take a dovish hike in December, then hold rates going into 2027. The market is pricing two more hikes. The team argues that rates have already tightened since summer, but policy does not look overly restrictive from a business perspective.
“we think that the Fed at that point in December will take an opportunity to have a dovish hike, so make rates pause going into 2027 rather than signal two more hikes, which is what I think the market is expecting.”at 4:31
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
Enterprise AI adoption & AI software
Business AI adoption is rising, near a quarter now and possibly around 30% by Q1.
Census Bureau survey data shows about a quarter of businesses have adopted AI, which could reach around 30% by Q1 if current trends hold. Private indices that measure business spending on AI models suggest adoption is much higher, around 70%. The team thinks the truth is somewhere in between. The bottom line is that more businesses are adopting AI in their practices, which is fueling demand and justifying hyperscaler capex plans.
“about a quarter of businesses have adopted AI, and that could go to around 30% by Q1 if current trends hold.”at 5:09
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
AI infrastructure & data centers
Hyperscaler AI capex is accelerating on stronger demand, ramping toward $1 trillion a year by 2028.
Hyperscaler capex plans started 2026 around $500 billion. After Q2 earnings they rose further, as hyperscalers said demand for AI services and compute was far stronger than anticipated, justifying faster spending in 2026. The team expects capex to ramp to about $1 trillion a year by 2028. The team argues these large numbers are justified by stronger-than-expected demand.
“That number has gone even higher after the Q2 earnings ... and we think we'll ramp up to about $1,000,000,000,000 a year by 2028.”at 6:00
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
AI productivity gains are not yet visible, but small-business AI use points to future US productivity gains.
AI's productivity effect is not yet showing up in the productivity numbers that economists are watching. Business applications have surged since ChatGPT's 2022 launch to an all-time high, with more businesses created than at any point in history. Entrepreneurs say they use AI to replace outsourced marketing and legal advice, which helps small businesses grow. The team expects this to eventually lead to US productivity gains.
“we're not really seeing these yet in the productivity numbers, which I think most economists are watching out for. ... And I think eventually that will lead to productivity gains in The US economy.”at 6:36
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
AI IPOs are waiting for calmer rates; IPO and M&A activity already accelerating despite high rates.
Higher rates compressed valuations, so a gap has opened between the prices bigger IPOs expected and what the market is pricing. Several recent high-profile IPOs have had mixed performance. AI companies are taking a wait-and-see approach until rates calm, and conditions may improve with a more dovish Fed into Q4. Even so, 2026 has been a very strong IPO year despite high rates. Because the market is supply-driven and less rate-sensitive, IPO activity is accelerating from last year and M&A activity is also rising.
“they're really taking a wait and see mode. I think they might wait until the situation with rates have calmed down a bit.”at 8:16
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
Split government makes new AI regulation unlikely; it won't stop the AI trade.
The base case is a Democratic House and Republican Senate with a Republican White House. That split falls short of the two-thirds majority needed to override a veto, so Democratic-led AI regulation looks quite slim. A Democratic House would act as a legislative check through the power of the purse, and a Democratic Senate would be a personnel check on AI czars and cabinet confirmations. Overall, the team does not expect more AI regulation, and it will not stop the AI trade.
“So we don't think that we'll necessarily see more out of AI regulation, [it] will not stop the AI trade, and actually might be beneficial for rates”at 11:05
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
Split government may curb US spending, so longer-term yields could rally.
With an institutional check on the White House, markets may conclude the US will be less profligate on spending. That could lead longer-term rates to rally. The team presents this as a possible market reaction rather than a firm forecast.
“The markets might think that The US will be less profligate when it comes to spending and the longer term rates might start to rally as a result.”at 11:13
UBS On-Air: Top of the Morning: CEO Macro Briefing Book Q4 update ·
Shows
- UBS On-Air · 2 episodes
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