The launch of ChatGPT in November 2022 was a turning point in the development of artificial intelligence (AI), leading to its mass adoption. According to UBS analysts, this event has stimulated significant investment and technological progress, which will potentially impact all sectors of the economy.
In a recent note to clients, the bank’s strategists emphasized that while AI adoption is in its early stages, its investment potential is significant.
“At the dawn of the AI era, we recommend investors focus on vertically integrated players in the AI value chain,” they wrote, highlighting companies that combine clear monetization paths with strong competitive positions.
The potential size of the artificial intelligence market is huge: Bloomberg estimates it will be $1.3 trillion by 2032, and McKinsey estimates it to be $4.4 trillion. UBS projects that annual AI revenue could top $1 trillion over the next decade.
This growth is expected to be driven by increased productivity from artificial intelligence tools for knowledge workers, of whom there are about 1 billion worldwide. For example, developers using artificial intelligence tools like GitHub Copilot can write code 55% faster, and customer service operations can become 30-50% more efficient thanks to generative AI.
UBS describes an investment structure with three layers of the AI value chain: support, intelligence and applications.
The enabling layer includes the physical infrastructure, such as AI data centers, needed to train and run generative AI models. UBS forecasts annual capital spending at this level will reach $331 billion by 2027, driven by investments in artificial intelligence servers and data center infrastructure.
“Much of the value of the back-end layer is likely passed on to the AI servers,” UBS said.
“Due to the scale of AI computing, most companies will likely use computing resources in the form of cloud services. As a result, we expect $185 billion in value added by 2027.”
The intelligence layer includes generative artificial intelligence algorithms and large language models (LLMs) that use the computing resources of the support layer. Although this layer is still in the early stages of monetization, it is expected to show strong growth due to its fundamental role in AI development.
“We expect this layer to post the strongest growth in 2027, given its small base,” UBS said.
Finally, the application layer, which includes software applications and AI-powered services, offers the greatest monetization potential, according to UBS strategists. However, it is difficult to assess the possibilities at this stage, they added.
This tier features tools such as AI coding pilots and personal assistants, which have already demonstrated significant productivity gains. For example, Microsoft’s GitHub Copilot generated more than $100 million in revenue in 2023 and grew 40% year-over-year with 1.3 million users.
“With a 50-60% increase in developer productivity, we expect faster code creation,” the strategists write.
In the short term, UBS said it sees the biggest opportunity in artificial intelligence. The Bank continues to expect the ratio of applications to support and intelligence layers to mean limited net benefits for the application layer in the early stages of cyclical and structural growth in generative AI.