Broader funding data do not yet confirm an Academic & Government recovery

Overview

This sector note tests whether the apparent improvement in NIH data and recent company commentary signals a genuine recovery in Academic & Government demand. Bernstein concludes that a wider set of funding indicators does not support that narrative and therefore reinforces its cautious sector stance.

Core views

Investors have become more optimistic on the Academic & Government (A&G) end market following an improvement in NIH data and selected 2Q signals. NIH funding and award obligations increased 13% on a trailing-12-month basis through July 2026, including sequential growth of 31% in June and 9% in July. Thermo Fisher's A&G revenue returned to low-single-digit growth for the first time since 4Q24, while Danaher said academic demand improved modestly as the quarter progressed. Across tracked tools companies, 40% of A&G commentary was positive and none negative on 2Q26 earnings calls, versus 29% positive and 29% negative at June conferences. Bernstein notes, however, that companies were generally hesitant to call a recovery, and NIH outlays fell 15% sequentially and 1% on a trailing-12-month basis. The report argues that NIH data are an incomplete proxy for the end market. A&G accounts for 8–15% of revenue across covered diversified tools companies, while NIH is typically only a low-single-digit percentage of company revenue. For Thermo Fisher, which has 15% revenue exposure to A&G, roughly half of that exposure is in the U.S. and NIH is only a few points of total revenue; Bernstein therefore estimates NIH represents less than one-quarter of Thermo Fisher's global A&G revenue. An NIH-only view can miss other U.S. funding sources and overseas demand, potentially giving the wrong signal for reported A&G growth. To broaden the assessment, Bernstein tracks U.S. federal contract awards for selected life-science-tools and diagnostics product codes, Horizon Europe healthcare grants, China's public science and technology spending, and UK healthcare grants. The aggregate evidence is not encouraging. U.S. federal contract awards fell 10% year-on-year over the last 12 months, and July awards were down 49% year-on-year despite rising 10% sequentially; annualized 2026 spending appears roughly flat with 2025. The data cover four selected product and service codes, so they exclude other purchasing channels and can be affected by procurement seasonality, reporting delays, classification inconsistency and retrospective revisions. Horizon Europe healthcare grant commitments declined 13% on a trailing-12-month basis. July commitments were €38.6M, down 60% year-on-year and 61% sequentially. Bernstein acknowledges that year-to-date spending is up year-on-year, a large May 2026 commitment could lead to purchases, and a meaningful portion of the Cluster 1 Health budget remains available through 2027. Nevertheless, it assigns greatest weight to the trailing-12-month decline and views the measure negatively for A&G spending. The dataset captures EU-level Pillar II, Cluster 1 Health grants rather than national or regional programs, and grant commitments may precede procurement. China's public science and technology spending rose 4% on a trailing-12-month basis, but Bernstein views this as a deceleration versus growth of 7.3% in 2021, 3.7% in 2022, 8.0% in 2023, 6.3% in 2024 and 4.8% in 2025. July spending was CNY55.4B, up 3% year-on-year but down 56% sequentially, while annualized 2026 spending trends flat versus 2025. Because the public series spans many industries and policy priorities, it is only a directional proxy for life-science-tools demand. The UK measure is mixed and demonstrates the influence of large individual awards. Healthcare grant commitments rose 35% on a trailing-12-month basis including the Our Future Health project, but fell 14% excluding it. Excluding that grant, commitments reached about £0.3B through July; annualizing underlying activity and adding £0.4B already committed to Our Future Health implies a 2026 total of £0.9B, above £0.8B in 2025. However, July commitments were only £2M, down 97% year-on-year and 96% sequentially. Bernstein stresses that the series is volatile, captures only BBSRC- and MRC-funded projects, and does not ensure immediate or direct conversion of grants into tools purchases. Overall, annualized 2026 indicators are somewhat more constructive than trailing-12-month readings, but their interpretation is complicated by grant timing, large awards and monthly volatility. Bernstein's broader cross-geography evidence does not validate a sustained A&G recovery and supports caution after the sector index rose about 22% over the preceding three months.

Analysis framework

Bernstein begins with NIH obligations, outlays and company commentary, then tests whether those signals hold across four additional public funding and procurement datasets. It aggregates selected transactions or commitments by month and year, compares trailing-12-month, year-on-year and sequential changes, annualizes 2026 using the average historical year-to-date share of full-year activity, and explicitly assesses each dataset's coverage limitations.

Methodology notes

• Industry AnalysisSupply-demand framework

  Use of public funding, grant commitments and procurement awards as directional indicators of Academic & Government demand for life science tools and diagnostics.

  The report treats research funding and contract awards as upstream demand signals that may ultimately influence tools purchasing, while noting that they are not direct measures of revenue.

• Other

  Historical year-to-date annualization of 2026 spending and commitments.

  For several datasets, Bernstein estimates a full-year 2026 run rate from the average share of annual activity recorded by the same point in the prior two years; it cautions that monthly volatility makes this estimate less reliable.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Waters (WAT)

  Explicitly covered life science tools company rated Outperform.

  Comparison

  Rated Outperform while Thermo Fisher, Avantor, Revvity and Illumina are rated Market-Perform.

• Agilent (A)

  Explicitly covered life science tools company rated Outperform.

  Comparison

  Rated Outperform while several diversified peers are rated Market-Perform.

• Guardant Health (GH)

  Explicitly covered diagnostics company rated Outperform.

  Comparison

  Rated Outperform in the covered group.

• Natera (NTRA)

  Explicitly covered diagnostics company rated Outperform.

  Comparison

  Rated Outperform in the covered group.

• Thermo Fisher (TMO)

  Explicitly covered diversified tools company rated Market-Perform; its A&G revenue returned to low-single-digit growth in 2Q.

  Strengths

  A&G revenue returned to low-single-digit growth for the first time since 4Q24.

  Weaknesses

  Broader A&G funding indicators do not confirm a sustained recovery.

  Comparison

  Rated Market-Perform, versus Outperform for Waters, Agilent, Guardant and Natera.

  Risks

  NIH may represent less than one-quarter of its global A&G revenue, limiting the usefulness of NIH alone as a demand indicator.

• Avantor (AVTR)

  Explicitly covered life science tools company rated Market-Perform.

  Comparison

  Rated Market-Perform in the covered group.

• Revvity (RVTY)

  Explicitly covered life science tools company rated Market-Perform.

  Comparison

  Rated Market-Perform in the covered group.

• Illumina (ILMN)

  Explicitly covered life science tools company rated Market-Perform.

  Comparison

  Rated Market-Perform in the covered group.

Key data

• NIH funding and award obligations+13% TTM through July 2026Included +31% sequential growth in June and +9% in July.
• NIH outlays-15% sequentially; -1% TTMThe more mixed outlay trend contrasts with improving obligations.
• U.S. federal contract awards for life science tools and diagnostics-10% TTM YoYJuly awards were -49% YoY and +10% sequentially.
• Horizon Europe healthcare grants-13% TTMJuly commitments were €38.6M, down 60% YoY and 61% sequentially.
• China public science and technology spending+4% TTMJuly spending was CNY55.4B, +3% YoY and -56% sequentially.
• UK healthcare grants excluding Our Future Health-14% TTMIncluding the project, grants increased 35% TTM; implied 2026 total was £0.9B versus £0.8B in 2025.

Impact & implications

Bernstein concludes that the broad funding backdrop remains insufficiently supportive to confirm an A&G recovery, despite improving NIH obligations, selected earnings commentary and somewhat better annualized 2026 trends. Because A&G is a meaningful 8–15% revenue exposure for covered diversified companies, the report considers a sustained recovery important but not yet demonstrated.

Risks

• Selected public funding and procurement datasets are incomplete proxies for life science tools and diagnostics demand, and grants may not translate directly or promptly into purchases.
• Monthly figures and annualized estimates can be distorted by grant timing, large individual awards, seasonality, reporting delays and retrospective data revisions.

What to watch

• Monthly NIH funding, award obligations and outlays, which investors continue to use as a key A&G demand proxy.
• Monthly U.S. contract awards, Horizon Europe healthcare commitments, China science and technology spending, and UK healthcare grants, which Bernstein plans to report going forward.
• Whether positive 2Q company commentary develops into a broader and sustained recovery in reported A&G revenue.