Markets have broadly put up strong numbers this year, especially since the late-March stumble that followed the escalation of conflict in Iran. The rally has been led by semiconductors, unsurprisingly tied to the ongoing AI boom. But that narrative is starting to look stale, and the theme appears extended after the SOXX ETF more than doubled between April and the end of June.
I still believe the AI boom has room to run, but I expect the next month or two to be choppy across the AI trade as these gains are digested and markets price in overspending nerves. Given how large these positions have become within the major indexes, that volatility could weigh on the broader market as well.
At the same time, healthcare, and especially biotech, has quietly started to lead.
Biotech has been in the doldrums for years, but this recent push appears to have legs. The group is benefiting from a stronger drug development cycle, renewed investor interest and the potential for AI to accelerate and broaden research pipelines. In addition, a number of now-profitable mid-cap biotech companies are trading at reasonable valuations, with improving earnings revisions and strong momentum at their backs.
The Health Care Sector ETF ( XLV) has pushed to new record highs this month, helped by both improving fundamentals and a defensive rotation beneath the surface of the market. Meanwhile, the Biotech ETF ( XBI) has climbed to new year-to-date highs and is now approaching levels not seen since the prior exuberant peak in 2021.
Most investors are familiar with Eli Lilly ( LLY), the clear market leader in the space, which continues to trade well. But several smaller and mid-cap names are also beginning to stand out, including Exelixis ( EXEL), PTC Therapeutics ( PTCT), Fortrea Holdings ( FTRE), and the well-known genomics leader Illumina ( ILMN).
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Illumina Shares Recover
Illumina is the dominant player in next-generation sequencing, providing the instruments, consumables, and array-based systems used for genetic and genomic analysis across research, clinical, and applied markets. Its customers span leading genomic research centers, academic institutions, government labs, hospitals, and pharmaceutical, biotech, and diagnostics companies.
After a bruising multi-year stretch, the story is turning. After tumbling some 80% and bottoming last year, shares have gained roughly 46% year to date and recently hit a new 52-week high.
On valuation, ILMN isn't especially cheap at 36x forward earnings, but it represents the space broadly as a leader in its segment. The company is expected to grow earnings at a respectable 10.25% annually over the long-term, and it hasn't missed the consensus estimate in any of the last four quarters. Momentum has clearly improved.
Illumina carries a Zacks Rank #2 (Buy) on the back of a solid earnings estimate revision trend, with modest revisions higher. As noted, the stock is a good barometer of the sector.
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PTC Therapeutics Stock Hits Record Highs
PTC Therapeutics is a biopharma focused on rare diseases, developing and commercializing therapies across neuromuscular and metabolic disorders. Its portfolio spans commercial products, a Novartis-partnered pipeline, and a growing global launch footprint.
The story here is all about momentum, and right now it's about one drug: Sephience (sepiapterin) for phenylketonuria. Shares have surged roughly 75% since the drug's July 2025 approval, driven by a blockbuster launch and raised full-year guidance. First-quarter revenue reached $273 million, with Sephience alone contributing $125 million, up 36% sequentially.
On valuation, PTCT isn't a classic value name, sitting near breakeven on profitability, so the multiple reflects growth optionality rather than current earnings. But the earnings picture is improving dramatically, with the consensus estimate climbing more than 150% over the past three months, and management targeting $2 billion in peak sales backed by roughly $1.89 billion in cash.
PTC Therapeutics was just upgraded to a Zacks Rank #1 (Strong Buy) on July 8 on the strength of that upward revision trend. Of this group, it's the strongest pure momentum story.
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Fortrea Holdings Stock Approaches Breakout Level
Fortrea is a contract research organization (CRO), spun out in 2023 and headquartered in Durham, NC, providing clinical development and patient-access services to pharmaceutical, biotech, and medical-device customers worldwide.
This is the deep-value turnaround of the group. After being left for dead last summer, shares have rebounded from around $4 to the mid-teens on backlog growth, margin improvement, and aggressive cost cuts. Q1 revenue was $636 million, roughly flat year over year, but backlog has swelled to $7.8 billion, pointing to better days ahead.
On valuation, the setup is compelling. FTRE trades at roughly 21.1x forward earnings, with EPS forecasts projecting 40.9% annual growth over the next 3-5 years. That said, sales growth forecasts is marginal over the next year.
Fortrea was added to the Zacks Rank #1 (Strong Buy) list on July 7, with the current and next year estimate rising over the last 60 days.
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Exelixis Shares Offer Growth and Value
Exelixis is an oncology biotech focused on drugs for difficult-to-treat cancers, anchored by its cabozantinib franchise and building out a pipeline of small molecules, antibody-drug conjugates, and other biotherapeutics.
Of the four, this is the cleanest blend of profitability, growth, and reasonable valuation. Shares recently hit a new 52-week high, backed by steady earnings compounding rather than a single catalyst. The company beat consensus last quarter and is expected to grow earnings around 15% annually, a healthy clip for an already-profitable biotech.
On valuation, EXEL is the most attractive of the group, trading at roughly 16x forward earnings, well below the peer industry average north of 21x, with a PEG near 1.5.
Exelixis carries a Zacks Rank #2 (Buy) on rising earnings estimates, with top-tier Value and Growth Style Scores and an overall VGM Score of A. EXEL stock has been grinding slowly and steadily higher over the last nine months.
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Should Investors Buy Shares in ILMN, PTCT, FTRE and EXEL?
The AI trade is not dead, but after such a powerful run, semiconductors may need time to digest gains. That makes the recent strength in healthcare and biotech especially notable.
Unlike some defensive rotations, this move is not only about investors hiding from volatility. Many biotech names now have improving pipelines, better earnings momentum, stronger balance sheets, and technical breakouts at their backs. ILMN offers broad exposure to genomics, PTCT brings explosive drug-launch momentum, FTRE is a deep-value turnaround, and EXEL offers the cleanest mix of profitability, growth, and valuation.
If market leadership continues to broaden beyond AI, biotech may be one of the more compelling areas to watch.
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Eli Lilly and Company (LLY): Free Stock Analysis Report
Illumina, Inc. (ILMN): Free Stock Analysis Report
Exelixis, Inc. (EXEL): Free Stock Analysis Report
State Street Health Care Select Sector SPDR ETF ETF (XLV): ETF Research Reports
PTC Therapeutics, Inc. (PTCT): Free Stock Analysis Report
State Street SPDR S&P Biotech ETF (XBI): ETF Research Reports
Fortrea Holdings Inc. (FTRE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).