The big winners of the tech wreck are biopharma stocks

By Jaimy Lee

The shares of large drugmakers like Lilly, Gilead and J&J keep hitting record highs

Eli Lilly's stock hit another record high this week after reporting its third-quarter results. It markets Mounjaro, a GLP-1 medication for people with Type 2 diabetes, which is the world's top-selling drug.

Who would have believed that the boring healthcare industry would be the hottest stock sector of 2026?

Companies like Johnson & Johnson (JNJ), Quest Diagnostics (DGX) and UnitedHealth Group (UNH) have long been known for producing steady results, driven by patient demand and government reimbursement.

But since June, the healthcare sector - in this case, that means health-insurance, lab-testing and biopharmaceutical stocks - has become a safe haven for tech investors, who are increasingly concerned that the promise of artificial intelligence won't live up to sky-high expectations, as evidenced this week by another tech selloff driven in part by worries that AI is pressuring Google parent Alphabet's (GOOGL) (GOOG) core search business.

"The AI trade, with its persistent use of trillions of dollars of capital for what is essentially still a science project, has worn thin for many investors," Nicholas Colas, co-founder of DataTrek Resarch, wrote in a note to investors on Wednesday. "Whether that automatically confers a sustainably higher valuation for healthcare is an entirely separate issue, however."

That said, AbbVie (ABBV), Gilead Sciences (GILD), Eli Lilly (LLY) and Johnson & Johnson are all trading at or near all-time highs. These stocks are all up at least 29% so far this year, led by Gilead and Merck (MRK), which have both rallied about 41%.

They may be functioning as a safe place for tech investors, but these companies are also proof that the biopharma sector is operating at strength right now.

This week alone, Gilead reported its best quarter in a decade, Lilly raised its sales guidance for the third time this year and Merck's third-quarter results sailed past expectations. These drugmakers have solid pipelines of new drugs in the works and strategies in place to defend their top-selling drugs, while many of the fears around the Trump administration putting strict pricing controls in place have dissipated.

The biopharma sector has its own risks. Even after Gilead reported its "strongest year-over-year base business growth in more than a decade," analysts questioned how long it would take until the growth in its HIV franchise plateaus due to competition.

"For now, at least, we believe operational execution remains excellent," RBC Capital Markets analyst Brian Abrahams told investors on Thursday.

The industry is coming off its own downturn, which began around 2022. In the years since, several large drugmakers restructured their businesses, laying off thousands of workers and ending clinical development for dozens of drugs. At the same time, the first major government programs to limit drug prices went into place, and the riskier biotech sector struggled the most.

Healthcare stocks have since bounced back, in part due to the rotation away from tech stocks. On Friday, RBC Capital Markets' Trung Huynh noted that AbbVie's stock now has "heavy generalist ownership" and tends to do better on days when tech sells off.

The State Street Health Care Select Sector SPDR Exchange Traded Fund XLV had its best-ever day on Thursday, fueled by the better-than-expected third-quarter results from Lilly and Merck. It's up 10.2% over the last month, while the S&P 500 SPX is flat.

Health-insurance stocks are also having a strong comeback this year after a tumultuous 2025. UnitedHealth has gained 23.5% so far this year, while Humana (HUM) is up about 61% and Oscar Health (OSCR) has soared 112%.

And so are the lab companies: Labcorp's (LH) stock has gained 42.9% this year, while shares of Quest Diagnostics have soared 45.1%.

-Jaimy Lee

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10-30-26 1313ET