JPMorgan: Healthcare Stocks Are Approaching an Earnings Inflection Point as AI Dominates U.S. Equities
JPMorgan strategist Dubravko Lakos-Bujas and his team said in a recent report that healthcare is one of the largest and more resilient growth sectors in U.S. equities. The sector’s current valuation is attractive, and expected future earnings growth gives it a significant valuation advantage over the broader market. The AI boom has drawn substantial capital into U.S. stocks, leaving some more defensive sectors out of favor. JPMorgan said the large traditional healthcare sector has quietly reached an attractive entry window. The report said healthcare earnings growth is expected to reach an inflection point, rebounding sharply from a 1% year-over-year decline this year to more than 22% year-over-year growth in 2027. The sector is then expected to become one of the major contributors to overall earnings growth for the S&P 500. “Despite continued improvement in the sector’s fundamentals, healthcare is still trading at a significant discount to the broader market,” the report said. JPMorgan’s research found that, since ChatGPT emerged at the end of 2022 and sparked the AI frenzy, the U.S. healthcare sector’s annual performance has consistently lagged the S&P 500. The source describes the sector’s short-term performance after August 2025 as showing a clear recent strengthening in healthcare stocks. The chart’s blue line represents the iShares U.S. Healthcare ETF, while the purple line represents the S&P 500. The report said one key catalyst for weakening sentiment toward the sector has been the intensifying debate over U.S. drug-price reform. In 2022, the United States enacted the Inflation Reduction Act, or IRA. The law allows Medicare to negotiate prices directly for certain high-cost drugs and sets a cap on patients’ out-of-pocket prescription-drug costs. Its implementation has become an important policy variable weighing on valuations in U.S. healthcare stocks in recent years. Other pressures on healthcare stocks include potential Medicaid budget cuts, limits on insurance reimbursement and policy uncertainty—particularly President Donald Trump’s tariff policies and proposals associated with the Department of Government Efficiency, or DOGE, that could lead to large-scale reductions in government spending. The strategists also cautioned that one risk to their bullish view is the “patent cliff” expected in 2028, when patents on multiple drugs are scheduled to expire around the same time. The risk is concentrated mainly in biopharmaceuticals, while medical devices and life-science tools are expected to face relatively limited impact. Addressing these concerns, the report said: “Even so, we believe these negative expectations have already been reflected to a large extent in current valuations, investor positioning and ownership levels. Compared with historical levels, the room for further downside in healthcare is quite limited.”
The AI boom has drawn substantial capital into U.S. stocks, leaving some more defensive sectors out of favor. JPMorgan said the large traditional healthcare sector has quietly reached an attractive entry window.
The report said healthcare earnings growth is expected to reach an inflection point, rebounding sharply from a 1% year-over-year decline this year to more than 22% year-over-year growth in 2027. The sector is then expected to become one of the major contributors to overall earnings growth for the S&P 500.
“Despite continued improvement in the sector’s fundamentals, healthcare is still trading at a significant discount to the broader market,” the report said.
JPMorgan’s research found that, since ChatGPT emerged at the end of 2022 and sparked the AI frenzy, the U.S. healthcare sector’s annual performance has consistently lagged the S&P 500.
The source describes the sector’s short-term performance after August 2025 as showing a clear recent strengthening in healthcare stocks. The chart’s blue line represents the iShares U.S. Healthcare ETF, while the purple line represents the S&P 500.
The report said one key catalyst for weakening sentiment toward the sector has been the intensifying debate over U.S. drug-price reform.
In 2022, the United States enacted the Inflation Reduction Act, or IRA. The law allows Medicare to negotiate prices directly for certain high-cost drugs and sets a cap on patients’ out-of-pocket prescription-drug costs. Its implementation has become an important policy variable weighing on valuations in U.S. healthcare stocks in recent years.
Other pressures on healthcare stocks include potential Medicaid budget cuts, limits on insurance reimbursement and policy uncertainty—particularly President Donald Trump’s tariff policies and proposals associated with the Department of Government Efficiency, or DOGE, that could lead to large-scale reductions in government spending.
The strategists also cautioned that one risk to their bullish view is the “patent cliff” expected in 2028, when patents on multiple drugs are scheduled to expire around the same time. The risk is concentrated mainly in biopharmaceuticals, while medical devices and life-science tools are expected to face relatively limited impact.
Addressing these concerns, the report said: “Even so, we believe these negative expectations have already been reflected to a large extent in current valuations, investor positioning and ownership levels. Compared with historical levels, the room for further downside in healthcare is quite limited.”