UBS advised investors to look past near-term challenges in tech stocks, emphasizing that artificial intelligence (AI) remains a key driver of long-term portfolio growth.
In a note, the bank pointed out that U.S. equities pulled back on Monday after a recent rally fueled by Federal Reserve Chair Jerome Powell’s indication that rate cuts may be forthcoming. UBS also noted that attention now turns to NVIDIA’s earnings report on Wednesday.
Tech shares have faced pressure recently, with UBS observing that “concerns over the sustainability of the artificial intelligence rally” and typical seasonal weakness are weighing on sentiment.
The bank cautioned that investors should remain “mindful of the risk of a period of ‘capex indigestion’ following several years of robust spending from major tech companies.”
Despite this, UBS added: “We continue to believe that exposure to AI will prove key to portfolio growth over the medium and longer term.”
The bank highlighted increasing evidence that AI providers are successfully converting usage into revenue. “Tech giants are charging for AI-powered personalization tools used by retailers… and levying subscription fees for access to AI-enhanced tools,” UBS said, noting that cloud platforms have reported average annual revenue growth exceeding 25%.
Looking ahead, UBS estimated a potential annual AI revenue opportunity of roughly $1.5 trillion, based on assumptions about task automation, labor shares, and vendor capture within the $100 trillion global economy.
Against this backdrop, the bank said global AI capital expenditure of $780 billion between 2022 and 2025, and roughly $500 billion in 2026, “does not seem outlandish.”
While acknowledging concerns about a potential bubble, UBS noted that valuations remain supported by earnings growth and that “one of the typical causes of historical bubbles ‘popping’—higher interest rates—looks unlikely to materialize in the short to medium term.”
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