The launch of ChatGPT in November 2022 marked a pivotal moment in the field of artificial intelligence (AI), propelling it toward mainstream adoption. According to UBS analysts, this event has sparked significant investments and technological advancements, with potential impacts across all economic sectors.
In a recent note to clients, the bank’s strategists emphasized that while AI adoption is in its early stages, its investment potential is substantial.
“As the AI era begins, we recommend investors focus on vertically integrated players across the AI value chain,” they wrote, highlighting companies that combine clear monetization paths with strong competitive positioning.
The potential size of the AI market is immense, with estimates ranging from $1.3 trillion according to Bloomberg by 2032 to $4.4 trillion according to McKinsey. UBS suggests that annual AI revenues could exceed $1 trillion over the next decade.
This growth is expected to be driven by productivity improvements through AI tools for knowledge workers, who number around 1 billion worldwide. For example, developers using AI tools like GitHub Copilot can code up to 55% faster, and customer service operations could become 30-50% more efficient using generative AI.
UBS presents an investment framework with three layers of the AI value chain: the 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 projects that annual capital spending for this layer will reach $331 billion by 2027, driven by investments in AI servers and data center infrastructure.
“Most of the value of the enabling layer is likely captured by AI servers,” notes UBS.
“Due to 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 creation by 2027.”
The intelligence layer includes generative AI algorithms and extended language models (LLMs) that use the computing resources of the enabling layer. Although still in the early stages of monetization, this layer is expected to see strong growth due to its fundamental role in the development of AI.
“We expect this layer to show the strongest growth through 2027, given its small base,” UBS emphasized.
Finally, the application layer, which includes AI-driven applications and software services, offers the greatest monetization potential, according to UBS strategists. However, the opportunities it holds are difficult to quantify at this stage, they added.
This layer includes tools such as AI co-pilots for coding and personal assistants, which have already demonstrated significant productivity gains. Microsoft’s GitHub Copilot, for example, generated over $100 million in revenue in 2023 and saw 40% year-over-year growth with 1.3 million users.
“With developer productivity gains of 50-60%, we expect software code creation to accelerate,” the strategists write.
In the near term, UBS said it sees the biggest opportunities in the enabling layer of AI. The bank still expects that the relationship between applications and the activation and intelligence layers will imply limited financial profitability for the application layer during the early stages of the cyclical and structural ramp-up of the application. Generative AI.
