The launch of ChatGPT in November 2022 marked a pivotal moment in the field of artificial intelligence (AI), driving its widespread adoption. According to UBS analysts, this event has stimulated significant investments and technological progress, with potential impacts across all economic sectors.
In a recent note to clients, the bank's strategists emphasized that although AI adoption is still in its early stages, its investment potential is great.
“In the early stages of the AI era, we recommend investors focus on vertically integrated players across the AI value chain,” they wrote, highlighting companies that combine clear monetization paths with a strong competitive position.
The potential size of the AI market is enormous, with estimates ranging from $1.3 trillion for Bloomberg by 2032 to $4.4 trillion for McKinsey. UBS indicates that annual revenues related to artificial intelligence may exceed $1 trillion over the next decade.
This growth is expected to be driven by productivity improvements from AI tools for knowledge workers, who number approximately one billion people globally. For example, developers using AI tools like GitHub Copilot can code up to 55% faster, and customer service processes can become 30-50% more efficient using generative AI.
UBS defines an investment framework consisting of three layers of the AI value chain: enablement, intelligence and application layers.
The enabling layer includes the physical infrastructure, such as AI data centers, needed to train and run generative AI models. UBS expects annual capital expenditures for this layer to reach $331 billion by 2027, driven by investments in AI servers and data center infrastructure.
“Most of the value in the enabling layer is likely to be captured by AI servers,” UBS notes.
“Given the scale of AI computing, most companies will likely consume computing resources in the form of cloud services. As a result, we expect to generate $185 billion in value by 2027.”
The intelligence layer includes generative AI algorithms and large language models (LLMs) that use computing resources from the enabling layer. Although still in the early stages of monetization, this layer is expected to show strong growth due to its fundamental role in the development of artificial intelligence.
“We expect this layer to show the strongest growth through 2027 given its small base,” UBS highlighted.
Finally, the applications layer, which includes AI-powered software applications and services, offers the greatest monetization potential, UBS strategists said. They added that it is difficult to measure the opportunities available at this stage.
This layer features tools like programming AI assistants and personal assistants, which have already shown significant productivity gains. For example, Microsoft's GitHub Copilot generated over $100 million in revenue in 2023 and grew 40% year over year with 1.3 million users.
“With developer productivity gains of 50-60%, we expect software code generation to accelerate,” the strategists wrote.
In the near term, UBS said it sees the biggest opportunities in the enabling layer of artificial intelligence. The Bank still expects that the ratio of applications to the enabling and intelligent layers will imply limited profitability for the application layer during the initial stages of the cyclical and structural slope of generative AI.
