UBS is getting more bullish on the outlook for artificial intelligence, and bracing for another prosperous year for the “tech theme of the decade.” The firm lifted its revenue forecast for AI by 40%. UBS expects revenues to grow by 15 times — from $28 billion in 2022 — to $420 billion by 2027 as companies invest in infrastructure for models and applications. In comparison, it took the smart devices industry more than 10 years for its revenues to grow by 15 times. “As a result, we believe AI will remain the key theme driving global tech stocks again in 2024 and the rest of the decade,” wrote Sundeep Gantori, adding that AI growth could result in consolidation that favors the giants getting bigger and “industry leaders with deep pockets and first-mover advantages.” Artificial intelligence was the trade to invest behind in 2023, boosting chipmaker Nvidia nearly 240% as Wall Street bet on its graphics processing units powering large language models. Other semiconductor stocks, including Advanced Micro Devices, Broadcom and Marvell Technology, also rallied on the theme, with the VanEck Semiconductor ETF (SMH) notching its second best year on record with a 72% gain. The world may only be in the early innings of yearslong AI wave, but UBS views semiconductors and software as the best areas to position in 2024. Both industries should post double-digit profit growth and operating margins exceeding 30%, and the 22% average for the global IT industry. “Semiconductors, while cyclical, are well positioned to benefit from solid near-term demand for AI infrastructure,” the firm said. “Meanwhile, software, with broadening AI demand trends from applications and models, is a defensive play, thanks to its strong recurring revenue base.” Within the semiconductor industry, UBS favors logic, memory, capital equipment and foundry names, while companies exposed to office productivity, cloud, and models appear best situated in software. — CNBC’s Michael Bloom contributed reporting
