US, China, Europe to see big investments in AI along with regulation in 2025: UBS
New Delhi: The year 2024 ended strongly for the artificial intelligence sector, with the leading index Nasdaq Composite delivering strong returns for two consecutive years. Global financial services firm UBS answered key questions for the AI rally in the new year in a January 2 report, while maintaining its bullish stance on the AI theme.
It expects more spending from the Big 4, with its capital expenditure forecast rising from USD 224 billion in 2024E to USD 280 billion in 2025E. Apart from this, it also sees further signs of AI monetisation.
Here, Alphabet, Microsoft, Amazon, and Meta are referred to as the Big 4. “The large capex revisions by the Big 4 demonstrate their strong commitment to the structural AI growth story. The good news is that we expect upward revisions to continue in the near future…” On the AI regulation front, UBS believes that with the new US administration, AI regulation will accelerate in the US as well as in China and Europe. “AI regulation has gathered pace in 2024, and more regulations are to be introduced in 2025. Regulations have always been, and always will be, a risk to the tech sector – even more so for AI today, as we expect regulation to evolve rapidly in the coming years,” the UBS report said. They urged market participants to be prepared for more AI regulation in 2025, but also for demand to grow. “In addition, our recent checks indicate strong and improving demand from sovereign and enterprise AI customers, which should further broaden AI capex spending trends.” Further, it also advised investors that they would need to remain more agile in 2025 amid rising regulation, potential product transitions, and tariff-related uncertainties.The launch of ChatGPT in late 2022 rekindled structural outperformance in the sector.With the AI rally now mature and adoption rates also rising, UBS believes it is a good time for investors to take stock of the state of the AI industry.
On revenue, UBS said revenue should continue to lag capex in 2025, but the gap should narrow in the coming years.It also shed some light on what could drive volatility in 2025. It said investors need to be prepared for slightly more volatile returns in 2025. “Of course, the easy gains in the AI business are behind us,” it argued. “This is based on our view that despite the structural trend, now that the AI rally has become more mature, any uncertainty around product cycles or tariff-related uncertainties could lead to some short-term profit-taking by tactical investors and, therefore, more volatility.”
Investors should be prepared for more volatility in 2025 as growth rates slowly begin to normalize, but they can take advantage of any correction by buying dips in structured strategies and quality AI stocks, it suggested.
