- Amazon, Apple, Alphabet and Meta will continue to drive profits, bank says
Billions of dollars of investment into artificial intelligence is set to propel tech stocks to yet another year of bumper gains, according to analysts at UBS.
UBS wrote in a note on Friday that while ‘the easy gains in AI may well be behind us’, the rally ‘looks far from over’.
The investment bank also tipping the world’s biggest tech companies to make progress on converting capital expenditure into profitability this year.
The AI boom helped the world’s biggest tech outperform the wider market during a 2024 otherwise characterised by macroeconomic uncertainty and geopolitical turmoil.
US tech index, the Nasdaq, added around 33 per cent in 2024, with the likes of Apple, Amazon and Tesla up by 30 to 70 per cent each, and chipmaker Nvidia up by an incredible 190 per cent.
The so-called Magnificent Seven tech giants were responsible for more than half the S&P 500’s gains in 2024.
By contrast, the tech-light FTSE 100 added just 5.7 per cent, while the Eurostoxx 600 index was up 6.4 per cent
UBS: ‘Gap between AI capex and revenues will narrow in 2025’
UBS wrote: ‘While the easy gains in AI may be behind us, we think this rally looks far from over.’
The bank thinks AI-related capex from the four biggest tech companies – Amazon, Apple, Alphabet and Meta – will continue to propel gains in the near term, with spending having grown 51 per cent year-on-year to $224billion last year.
UBS forecasts 25 per cent year-on-year growth in 2025 to $280billion.
The bank also predicts big tech firms will ‘make more headway in monetising their AI spending this year’.
It said: ‘We anticipate the gap between AI capex and revenues will narrow in 2025.
‘Companies adopting AI will use it to both increase their revenue and reduce their costs, which speaks to the utility of economic value add from AI as a key metric for monetisation.’
UBS added that AI valuations ‘aren’t as stretched as you might think’, despite two years of bumper gains, thanks to earnings growth.
It said: ‘We remain bullish on the AI theme and maintain our positive view on AI semiconductors and leading cloud platforms.
‘We remain constructive on quality large-cap AI names in particular, with strong seasonality in the first quarter another near-term driver.’
Where next for the ‘AI revolution’?
In a separate note published this week, Wedbush analysts considered where market interest may fall in year three of the ‘AI revolution’.
Nvidia and Jensen led the initial charge as their chips became the picks and shovels of the emerging AI goldrush.
So-called cloud/hyper scale players followed, Wedbush said, with ‘Microsoft and now… Google (GCP) and Amazon (AWS) finding major cloud and AI momentum’.
Now the broker thinks it is time for the broader software space ‘to get in on the AI party’, amid ‘exploding’ numbers of use cases emerge.
‘The AI software era is now here’, said Wedbush, with ‘key players to benefit from this once in a generation 4th Industrial Revolution’.
Salesforce chief executive Marc Benioff is betting on AI to drive CRM firm’s growth trajectory
The broker has tipped big data analysis provider Palantir and customer relationship management (CRM) platform Salesforce as ‘the two best software plays on the AI Revolution into 2025’.
Palantir Technologies was the S&P 500’s top performer in 2024, adding roughly 370 per cent, as the group amassed both customer orders and shareholder interest with its AI platform.
Wedbush said: ‘Palantir has been a major focus during the AI revolution with expanding use cases for its marquee products leading to a larger partner ecosystem with rapidly rising demand across the landscape for enterprise-scale and enterprise-ready generative AI.
‘This will be a major growth driver for the US Commercial business over the next 12 to 18 months as more enterprises head down the AI path with Palantir.’
Salesforce added a more modest 30 per cent last year, but Wedbush thinks the group is in pole position in 2025.
The broker said: ‘With the AI Revolution entering the software phase heading into 2025, [Salesforce] is well-positioned to capture its fair share of market expansion as the AI monetization phase will catalyse [its] growth over the next 12 to 18 months with a $7trillion digital labour market opportunity on the horizon.
‘We believe [Salesforce] is a clear second derivative beneficiary of the AI revolution that could add ~$80 per share… as this monetisation story takes shape over the next 12 to 18 months.’
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