The year 2023 saw the largest US technology stocks, often referred to as the "Magnificent seven," outshining the broader market, with gains ranging from 48% to an impressive 249%, while the S&P 500 Index closed with a 24.2% price return.
Notably, many of these companies play pivotal roles in the advancement and widespread application of artificial intelligence (AI). As investors contemplate the sustainability of 2023's AI-driven successes in 2024, UBS remains optimistic about the enduring investment case for AI and related entities.
While concerns may arise regarding potential headwinds, such as a slower practical implementation of AI or a strategic shift in investor portfolios away from the previous year's leaders, UBS believes that the investment outlook for AI will not only persist but also strengthen in 2024.
The integral role of these technology giants in the ongoing development and dissemination of AI positions them favorably to continue driving innovation, efficiency, and profitability in the evolving landscape of the tech sector.
“When we launched our AI industry revenue estimates last year, we expected growth from USD 28bn in 2022 to USD 300bn by 2027. That translated into a compounded annual growth rate of 61%,” said the Chief Investment Officer Americas at UBS.
“But we now upgrade our estimate further, with the greatest risk being that we are too conservative. We now forecast industry revenues of USD 420bn by 2027— a 72% annual growth rate and a fifteenfold increase in just five years.”
Analysts argue that the potential factors influencing the 15x growth in AI revenues from 2022 to 2027 are a demand for AI that exceeds initial expectations and improved transparency regarding company expenditures on AI infrastructure.
While these numbers may appear ambitious, they align with historical trends seen in earlier phases of the computing cycle, including mainframe, PC, and smartphone shipments.
“When it comes to expressing these views in portfolios, we believe the semiconductor and software industries (with a combined market cap of more than USD 10tr) are the best ways to ride the strong and improving visibility for AI,” analysts added.