Investment firms are showing increased confidence in AI stocks as global demand for the technology is expected to skyrocket. Despite some concerns and comparisons to the dot-com bubble, Bank of America, Morgan Stanley, and UBS are now optimistic about the future of AI. UBS’s global wealth management arm’s Chief Investment Officer, Solita Marcelli, expressed her belief in the technology’s potential, pointing to clear use cases and long-term visibility. UBS has projected a more than tenfold increase in global AI demand from $28 billion in 2022 to $300 billion in 2027, with a compound annual growth rate of 61%. Bank of America is even more bullish, predicting a $900 billion market for AI globally by 2026.
Morgan Stanley, on the other hand, dismisses concerns that AI stocks are in a bubble. Analyst Shawn Kim stated that today’s leading AI companies have strong cash flow characteristics, unlike many smaller companies during the dot-com bubble that lacked a viable business case. Morgan Stanley’s caution lies more in the near-term impact on earnings, particularly in the event of economic slowdown. Despite rising investment in AI, a Morgan Stanley poll revealed that only 4% of chief information officers are prioritizing spending on new generative AI projects.
For investors who believe in the potential of AI, Bank of America, Morgan Stanley, and UBS have identified several top AI investments. Bank of America listed six semiconductor-related companies that are expected to benefit from the growth of AI, including Nvidia, Marvell Technology, Broadcom, Synopsys, Cadence Design Systems, and Camtek. However, the firm warned that increased AI investments might offset spending declines in traditional computing. Both Morgan Stanley and Bank of America consider Nvidia and Microsoft to be the clear winners of the AI revolution.
UBS suggests taking a selective approach to AI investing, waiting for a pullback in valuations before turning positive on the segment again. The firm sees potential in mid-cyclical companies, particularly those in the software industry and internet firms. UBS predicts significant growth in the AI applications and data models segment, projecting $170 billion in revenue by 2027. To catch up, the industry will need to grow at a rate three times higher than the hardware infrastructure counterpart.
Overall, investment firms remain bullish on AI stocks, anticipating significant growth in global demand. While caution is advised due to the potential impact on near-term earnings and valuations, the long-term potential of AI continues to attract attention and investment.
