The rise of artificial intelligence ‘far from over’, says UBS as it eyes further big tech gains in 2025.

Billions of dollars in investment in artificial intelligence should propel tech stocks to another year of big gains, according to UBS analysts.

UBS wrote in a note on Friday that while ‘easy gains in AI may be behind us’, the upswing ‘looks far from over’.

The investment bank also advises the world’s biggest technology companies to make progress in turning capital expenditure into profitability this year.

The boom in artificial intelligence helped the world’s biggest technology outperform the broader market during 2024, a year otherwise characterized by macroeconomic uncertainty and geopolitical turmoil.

America’s tech index, the Nasdaq, added about 33 percent in 2024, with Apple, Amazon and Tesla up 30 to 70 percent each and chip maker Nvidia up a whopping 190 percent.

The so-called Magnificent Seven tech giants were responsible for more than half of the S&P 500’s gains in 2024.

By contrast, the tech-light FTSE 100 added just 5.7 percent, while the Eurostoxx 600 rose 6.4 percent

UBS wrote: ‘While easy gains in AI may be behind us, we think this rally looks far from over.’

The bank believes that AI-related capital investment by the top four tech companies – Amazon, Apple, Alphabet and Meta – will continue to grow in the short term, with spending rising 51 percent year-on-year to $224 billion last year.

UBS predicts 25 percent annual growth in 2025 to $280 billion.

The bank also predicts that big tech companies will ‘make more progress in monetising their AI spending this year’.

It said: ‘We predict that the gap between AI investment and revenue will narrow in 2025.

‘Companies that adopt AI will use it to increase their revenues and reduce their costs, which speaks to the utility of AI’s economic value added as a key monetization metric.’

UBS added that AI valuations are ‘not as stretched as you think’, despite two years of strong gains, thanks to earnings growth.

It said: ‘We remain bullish on AI and maintain a positive view on AI semiconductors and leading cloud platforms.

‘We remain constructive on quality big AI names and a strong first quarter season is another near-term driver.’

Where next for the ‘AI revolution’?

In a separate note published this week, Wedbush analysts consider where market interest may fall in the third year of the ‘artificial intelligence revolution’.

Nvidia and Jensen led the initial charge as their chips became the pickaxes and shovels of the emerging artificial intelligence gold rush.

The so-called cloud/hyper scale players followed, Wedbush said, with ‘Microsoft and now… Google (GCP) and Amazon (AWS) finding great momentum in cloud and artificial intelligence’.

Now the broker thinks it’s time for the expanding software space to ‘get on the AI ​​party’, amid an ‘explosive’ number of use cases.

“The era of artificial intelligence software is now here,” Wedbush said, with “key players set to benefit from this once-in-a-generation fourth industrial revolution.”

The broker cited big data analytics provider Palantir and customer relationship management (CRM) platform Salesforce as ‘two of the best software solutions for the AI ​​revolution in 2025’.

Palantir Technologies was the best performer on the S&P 500 in 2024, adding roughly 370 percent, as the group garnered customer orders and shareholder interest with its AI platform.

Wedbush said: ‘Palantir has been a major focus during the AI ​​revolution with growing use cases for its marquee products leading to a larger partner ecosystem with rapidly growing demand across the landscape for enterprise-grade 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 go down the AI ​​path with Palantir.’

Salesforce added a more modest 30 percent last year, but Wedbush thinks the group will be at its best in 2025.

The broker said: ‘With the AI ​​revolution entering the software phase moving into 2025, (Salesforce) is well positioned to capture its fair share of market expansion as the AI ​​monetization phase will catalyze (its) growth over the next 12 up to 18 months. with a $7 trillion digital labor 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 monetization story takes shape over the next 12 to 18 months.’