UBS lifts AI spending forecast to $1.4 trillion despite tech sell-off
UBS has raised its forecast for global spending on artificial intelligence (AI) infrastructure, even as investors dumped technology shares on fears the boom is overheating.
The Swiss bank now expects AI capital expenditure to reach $1 trillion this year and $1.4 trillion in 2027, with a new forecast of $1.5 trillion for 2028.
Its wealth management arm, led by chief investment officer Mark Haefele, said the latest results from the big tech groups showed demand for AI infrastructure remained exceptionally strong.
A bruising week
The upgrade follows a difficult week for the sector, with the Nasdaq Composite falling 2.9% on Friday and 2% over the week.
Alphabet, the owner of Google, lost almost 13% in a day after reporting negative free cash flow and signalling another big jump in spending next year.
Meta, the owner of Facebook, fell nearly 7% after raising the bottom of its spending range for this year to $135 billion.
Intel slumped 28.6% on Friday.
UBS said the chipmaker was a case of strong AI demand colliding with practical limits, as component shortages left it unable to meet orders for data centre chips while pushing up PC prices.
Three worries
The bank said investors had shifted their attention from spending plans to three concerns: overinvestment, financing and cannibalisation, where AI eats into existing businesses.
Google Search is the clearest example, with query growth at a five-year high but revenue growth slowing because AI-powered searches currently make less money.
However, cloud computing, a key test of whether AI investment is paying off, is growing faster.
Google Cloud revenue more than doubled in the third quarter, while Microsoft's Azure grew 48% and Oracle's cloud business 62%.
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Microsoft reported an eight-fold increase in large Copilot accounts, and Alphabet said its Gemini assistant had reached 1 billion users.
Neocloud fears overdone
UBS played down fears over neoclouds, specialist firms that rent out computing power and have borrowed heavily to build it.
It said they accounted for only about 8% of AI spending, against 80% for the largest technology groups.
That concentration among well-funded companies makes project delays and consolidation more likely than a broad collapse in spending, according to the bank.
UBS said it would reconsider its outlook if growth in AI lab revenues slowed sharply, cloud usage weakened, or efficiency gains slashed the amount of computing power needed.
For now, it expects higher volatility to be the new normal for AI stocks.
