© Reuters Buy any undue correction in quality AI leaders says UBS
The investment case for artificial intelligence is still intact, according to analysts at UBS on Friday, with the bank saying that companies with a clear AI roadmap are benefiting from secular tailwinds.
“We believe the investment case on tech, including AI, remains intact and recommend investors use any undue correction in quality AI leaders as a buying opportunity,” wrote the firm.
UBS feels AI monetization trends are improving, while capex trends remain strong, noting that Microsoft (NASDAQ:) and Alphabet (NASDAQ:) reported accelerating cloud growth compared to previous quarters, thanks to rising contributions from AI.
“Moreover, we are also witnessing a broad-based increase in AI-related capex,” argued the analysts at UBS. “Microsoft and Alphabet’s strong commitment to increasing AI capex and comments from TSMC and Meta CEO Mark Zuckerberg on the demand for AI-related chips support our positive near-term view on AI infrastructure.”
The bank believes most of the AI-related spending is concentrated in the infrastructure layer, given the need to build and train huge datasets. They forecast a 50% compound annual growth rate (CAGR) for infrastructure spending, driven by emerging trends around the use of graphics processing units in cloud servers and AI edge-computing.
“With broadening AI demand and rising monetization trends, we expect the applications and models segment to emerge as the dominant force in the medium to long term,” said UBS. “We see a 152% CAGR during 2022–27 for AI applications and models.”
Overall, they forecast global AI revenues to increase fifteenfold between 2022 and 2027, from $28 billion to $420 billion.