The financial services arm of UBS, a Swiss banking giant, recently revised its guidance for the long-term artificial intelligence (AI) end-demand forecast. The previous forecast projected a compound annual growth rate (CAGR) of 20% from 2020 to 2025. However, UBS now anticipates a CAGR of 61% between 2022 and 2027. Solita Marcelli, the global wealth management chief investment officer Americas of UBS Financial Services, emphasized that AI is not a bubble due to its clear use cases and solid long-term visibility. Marcelli recommends investors to consider companies with clear monetization trends. This update confirms the immense financial potential of the emerging sector surrounding generative AI and related technology.
According to the UBS note, the total global tech market capitalization has increased by $6 trillion year-over-year, with AI-related enterprises contributing $2 trillion to this growth. UBS predicts that global AI demand will surge from $28 billion in 2022 to $300 billion in 2027. The note identifies two main components of the AI sector: an infrastructure layer and an application and data layer. Currently, most of the spending is focused on the infrastructure component, particularly on building and training large data sets. However, in the medium and long term, the application and data layer are expected to dominate with the rising use of innovative deployments of gen AI technologies like copilots, imagery, and big data analytics.
Marcelli stated, “We see significant opportunities over the next few quarters, such as in the integration of AI ‘copilots’ in office productivity software, rising demand for big data analytics, and AI integration in image/video and other enterprise applications.” UBS analysts anticipate that the applications and data segment will generate $170 billion in revenues by 2027, compared to $130 billion for the infrastructure layer. These projections imply compound annual growth rates of 139% and 38%, respectively. Therefore, UBS advises investors to pay close attention to companies in the AI software ecosystem, as infrastructure-adjacent semiconductor and hardware businesses, like Nvidia, continue to maintain high valuations. The note suggests that the risk-reward is more attractive for software stocks, which are well-positioned to capitalize on the broadening AI demand trends.
Investment and Innovation in AI-Based Companies
Investment in AI-based companies remains robust. Recently, German enterprise software giant SAP announced direct investments in three AI startups: Cohere, Anthropic (creator of the Claude 2 LLM service), and Aleph Alpha. This demonstrates the growing interest and confidence in the potential of AI and related technologies.
Nvidia, a prominent player in the AI industry, has also made significant advancements. The company recently unveiled DGX Cloud, a cloud-based AI supercomputing software service. Powered by thousands of virtual Nvidia GPUs, DGX Cloud allows organizations to remotely access their own AI supercomputer for training large complex LLM and other generative AI models. Tony Paikeday, senior director for DGX Platforms at Nvidia, explained that users can conveniently access the service from their browser without the need for a supercomputing data center.
UBS’s revised AI end-demand forecast highlights the tremendous financial potential of the emerging sector surrounding AI and related technologies. The projected growth in global AI demand, particularly in the application and data layer, presents significant opportunities for companies operating in the AI software ecosystem. Investors should closely monitor these companies as the broader AI trends continue to expand. The continued investment and innovation in AI-based companies signify the industry’s promising future.
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