Healthcare Sector Offers Durable Growth Amid AI Focus, JPMorgan Says

JPMorgan has reiterated a favorable view on the S&P 500's healthcare sector, arguing that its risk/reward profile is attractive after one of its most significant periods of underperformance in decades. Analysts at the firm believe the sector has been increasingly overlooked as investor capital remains narrowly focused on artificial intelligence.

A Contrarian Opportunity

In a note published Tuesday, JPMorgan strategist Dubravko Lakos-Bujas said healthcare "offers a rare combination of durable growth, Technology-like profitability, attractive valuation and diversification benefits." The firm noted this is particularly relevant at a time when many investment portfolios are heavily concentrated in the AI theme.

This intense focus on AI and related technologies over the past three years has left one of the market's largest and most historically stable growth sectors behind, according to the bank's analysis.

A History of Underperformance

JPMorgan detailed the extent of the sector's recent weakness, which has created what it sees as a compelling entry point for investors. Key points from their analysis include:

Ad

• The U.S. healthcare sector has lagged the broader S&P 500 every year since the launch of ChatGPT in 2022.
• It has experienced five separate drawdowns exceeding 10% during one of the market's strongest recent rallies.
• As a result, the sector's weight in the S&P 500 index has fallen from a peak of nearly 16% to approximately 9%, dropping it from the second-largest to the fifth-largest sector.

Weak sentiment has been driven by concerns over drug pricing reform, reimbursement pressures, and broader policy uncertainty. JPMorgan also noted that healthcare has become a popular "funding short" for investors to finance long positions in crowded AI trades, contributing to a major reset in investor positioning.

An Approaching Inflection Point

Looking ahead, the firm believes the sector is nearing a turning point. "With valuations still favorable (26%ile vs. market) and earnings growth poised to accelerate materially in 2027, we believe the sector is approaching a more durable inflection point,” Lakos-Bujas stated.

JPMorgan suggested that a potential gridlock outcome in upcoming elections could alleviate policy concerns. Furthermore, the analysts see a low bar for the sector to deliver upside surprises from productivity gains derived from its own adoption of AI technologies.