UBS forecasts AI stock volatility but still overall strong returns

UBS predicts mid-teen returns for global AI stocks in 2025, driven by strong investment commitments and rising monetization trends, despite potential market volatility from tariffs and export controls.

The forecast follows China’s DeepSeek AI launch, which raised concerns over cost competitiveness and briefly weighed on Big Tech stocks like Nvidia. However, Lenovo’s 20% revenue surge—fueled by AI computing demand—reinforced AI’s growing economic influence.

UBS expects global AI spending (excluding China) to hit $500 billion by 2026, with total AI-related revenues matching that figure, creating a $1 trillion end-demand opportunity.

By 2026, UBS estimates global AI operating profits at $350 billion, assuming margins of 35%—a conservative estimate relative to cloud platforms (35-40%) and AI semiconductor firms (50%).

Applying a 30x multiple to projected 2026 operating profits, UBS values the AI sector at $10.5 trillion by the end of 2025, compared to today’s $9 trillion market cap.

While trade policy uncertainty may trigger volatility, UBS sees long-term AI fundamentals remaining strong and advises investors to buy quality AI stocks on market dips.

This article was written by Eamonn Sheridan at www.forexlive.com.