Healthcare stocks are attracting renewed interest as investors look beyond the technology companies that have dominated Wall Street's gains. After years of underperformance, the sector is benefiting from a shift toward more defensive investments, while stronger earnings from major drugmakers are giving investors another reason to pay attention.
Investors look beyond technology
The rotation away from AI-heavy stocks has gathered momentum in recent weeks. A Goldman Sachs index excluding AI-related companies gained 12.4% through Oct. 22, slightly outperforming the broader S&P 500.
Technology and AI-linked companies account for roughly 45% of the benchmark, leaving investors particularly exposed when enthusiasm for the sector weakens.
Meanwhile, defensive ETFs tracking healthcare, utilities, and consumer staples have gained between 7% and 10% this month.
Oppenheimer analyst Ari Wald noted that investor sentiment has shifted toward companies with less exposure to AI spending.
Healthcare stands to benefit because demand for medicines and medical services tends to remain relatively stable even when economic conditions weaken.
Drugmakers deliver strong earnings
Recent quarterly results suggest the sector's appeal extends beyond its defensive reputation. Eli Lilly reported third-quarter revenue of $24.4B, exceeding Wall Street's expectations, and raised its annual sales outlook for the third time this year.
Its diabetes treatment Mounjaro generated $10.72B in quarterly sales, while obesity drug Zepbound contributed another $5.35B, reflecting continued demand for weight-loss treatments.
Merck also surpassed expectations, reporting revenue of $18.09B. Its blockbuster cancer treatment Keytruda generated $8.6B, comfortably ahead of forecasts.
Gilead Sciences delivered similarly strong results, with revenue climbing 13% to $8.3B. The company raised its annual sales guidance following continued growth in its HIV treatment business.
Together, the results show that some of the industry's largest companies are generating meaningful growth despite broader economic uncertainty.
Lilly Outsold Merck and Gilead Combined in Q3
Q3 2026 revenue, $B, reported Oct. 2026
Bar chart. Revenue ($B). Eli Lilly: Revenue ($B) $24.4. Merck: Revenue ($B) $18.1. Gilead Sciences: Revenue ($B) $8.3.
New treatments support growth
Beyond quarterly earnings, investors are watching how drugmakers expand their product portfolios and prepare for future competition.
Merck is developing Keytruda Qlex, an injectable version of its leading cancer treatment, as it approaches important patent expirations beginning in 2028.
Gilead is benefiting from demand for HIV prevention treatments, including Yeztugo, a twice-yearly injection that generated $305M in quarterly sales.
Lilly continues to dominate the US market for diabetes and obesity medications, although competition from Novo Nordisk remains significant.
Concerns about government intervention in drug pricing have also eased following agreements between the Trump administration and major pharmaceutical companies.
These developments have helped improve sentiment toward an industry that struggled with pricing pressure, restructuring, and disappointing clinical trials in recent years.
All Three Drugmakers Lifted or Tightened Their Full Year Outlook
Q3 2026 results and 2026 sales guidance, as of Oct. 30, 2026
| Company | Q3 2026 Revenue | 2026 Sales Guidance |
|---|---|---|
| Eli Lilly | $24.40B | $91B - $92B |
| Merck | $18.09B | $66.8B - $67.3B |
| Gilead Sciences | $8.30B | $31.1B - $31.3B |
Source: Source: CNBC, Investor's Business Daily
Risks remain for investors
Despite the improving outlook, healthcare isn't without challenges.
Gilead faces increasing competition in HIV treatments, while its cell therapy business has experienced declining sales.
Lilly's newer obesity pill Foundayo fell short of analysts' revenue expectations, highlighting the uncertainty surrounding new drug launches.
Novartis also recorded a substantial write-off following a failed late-stage clinical trial, demonstrating how expensive pharmaceutical research setbacks can become.
Valuations present another concern. As investors move money out of technology, healthcare stocks could become more expensive without a corresponding improvement in earnings.
DataTrek Research's Nicholas Colas cautioned that stronger investor interest doesn't necessarily justify permanently higher valuations.
What investors should watch
The sector's recovery has support from improving earnings, new treatments, and demand for investments less dependent on AI.
Gilead's underlying business is growing at its fastest pace in more than a decade, while Lilly and Merck have demonstrated continued strength in their leading drug franchises.
For investors seeking diversified exposure, healthcare sector ETFs offer access to pharmaceutical companies, insurers, medical equipment makers, and healthcare providers without relying on the success of a single treatment.
The recent rally suggests healthcare is becoming an increasingly attractive alternative to technology. Whether those gains continue will depend on earnings growth keeping pace with rising investor expectations.
