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Investing.com -- UBS said investors should look through short-term headwinds in technology stocks, arguing that artificial intelligence (AI) will remain a key driver of portfolio growth.
The bank highlighted in a note that U.S. equities eased on Monday after a recent rally sparked by Federal Reserve Chair Jerome Powell’s signal that rate cuts are coming, with the next test set to be NVIDIA’s earnings on Wednesday.
Tech shares have been under pressure, with UBS observing that “concerns over the sustainability of the artificial intelligence rally” and seasonal weakness are weighing on sentiment.
UBS cautioned that investors should be “mindful of the risk of a period of ‘capex indigestion’ following several years of robust spending from major tech companies.”
However, it added: “We continue to believe that exposure to AI will prove key to portfolio growth over the medium and longer term.”
The bank pointed to growing 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, adding that cloud platforms have reported average annual revenue growth above 25%.
Looking ahead, UBS estimated a potential annual AI revenue opportunity of about $1.5 trillion, based on assumptions about task automation, labor shares, and vendor capture within the $100 trillion global economy.
Against that backdrop, global AI capex in the range of $780 billion between 2022 and 2025, and roughly $500 billion in 2026, “does not seem outlandish,” according to the bank.
While acknowledging bubble concerns, UBS said valuations are 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.”