The AI rally is ‘far from over’, says UBS, with the company expecting further big tech gains in 2025
- Amazon, Apple, Alphabet and Meta will continue to drive profits, the bank says
Billions of dollars in investments in artificial intelligence will propel tech stocks to another year of huge gains, according to UBS analysts.
UBS wrote in a note on Friday that while “the easy wins in AI may be behind us,” the rally “seems far from over.”
The investment bank is also tipping the world’s largest technology companies to make progress in turning capital expenditures into profitability this year.
The rise of AI helped the world’s biggest technology outperform the broader market in a 2024 otherwise marked by macroeconomic uncertainty and geopolitical turmoil.
The US technology index Nasdaq rose by about 33 percent in 2024, with companies such as Apple, Amazon and Tesla each rising by 30 to 70 percent, and chipmaker Nvidia by as much as 190 percent.
The so-called Magnificent Seven tech giants were responsible for more than half of the S&P 500’s gains in 2024.
In contrast, the tech-light FTSE 100 rose just 5.7 percent, while the Eurostoxx 600 index rose 6.4 percent.
UBS: ‘Gap between AI investments and revenues will narrow by 2025’
UBS wrote: “While the easy wins in AI may be behind us, we think this rally appears far from over.”
The bank believes AI-related investments from the four biggest tech companies – Amazon, Apple, Alphabet and Meta – will continue to boost profits in the near term, with spending growing 51 percent year-on-year to $224 billion last year.
UBS predicts 25 percent annual growth by 2025 to $280 billion.
The bank also predicts that big tech companies will make “greater progress in monetizing their AI spend” this year.
It said: ‘We expect the gap between AI investments and revenues to narrow by 2025.
“Companies that adopt AI will use it to both increase revenues and reduce costs, demonstrating the utility of AI’s economic value addition as a key metric for revenue generation.”
UBS added that AI valuations are “not as high as you might think,” despite two years of huge gains, thanks to earnings growth.
It said: ‘We remain optimistic on the AI theme and maintain our positive view on AI semiconductors and leading cloud platforms.
“We remain constructive on high-quality, large-cap AI names in particular, with strong seasonality in the first quarter another near-term driver.”
Where now the ‘AI revolution’?
In a separate note published this week, Wedbush analysts considered where market interest could fall in the third year of the ‘AI revolution’.
Nvidia and Jensen led the initial charge as their chips became the picks and shovels of the emerging AI gold rush.
So-called cloud/hyperscale players followed suit, Wedbush said, with “Microsoft and now… Google (GCP) and Amazon (AWS) finding big cloud and AI momentum.”
Now the broker thinks it’s time for the broader software space to ‘join the AI party’ as ‘exploding’ numbers of use cases emerge.
“The AI software era is now here,” Wedbush said, with “key players set to benefit from this once-in-a-generation Fourth Industrial Revolution.”
Salesforce CEO Marc Benioff is betting on AI to boost the CRM company’s growth trajectory
The broker has tipped Big Data analytics provider Palantir and Customer Relationship Management (CRM) platform Salesforce as ‘the two best software to tap into the AI revolution in 2025’.
Palantir Technologies was the S&P 500’s top performer in 2024, up about 370 percent, as the group gained both customer orders and shareholder interest with its AI platform.
Wedbush said: “Palantir has been a key focus during the AI revolution, expanding the use cases for its major products, leading to a larger partner ecosystem with rapidly increasing demand across the landscape for enterprise-scale generative AI and ready for use.
“This will be a key growth driver for U.S. commercial activity over the next 12 to 18 months as more enterprises follow the AI path with Palantir.”
Last year, Salesforce added a more modest 30 percent, but Wedbush thinks the group will be in pole position by 2025.
The broker said: ‘As the AI revolution enters the software phase heading into 2025, (Salesforce) is well positioned to capture its fair share of market expansion as the AI monetization phase continues to drive growth in the will catalyze over the next 12 to 18 months. with a $7 trillion digital labor market on the horizon.
“We believe (Salesforce) is a clear secondary beneficiary of the AI revolution, which could add ~$80 per share… as this monetization story takes shape over the next twelve to eighteen months.”
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