- An important turning point in the development of artificial intelligence (AI) was the November 2022 debut of ChatGPT, which helped make AI more widely used. Analysts at UBS claim that this incident has sparked substantial investment and technical innovation, which could affect all areas of the economy.
- They wrote, highlighting companies that combine distinct monetization pathways with potent competitive positioning. “In the early innings of the AI era, we recommend investors focus on vertically integrated players across the AI value chain,” they said.
- According to estimates ranging from Bloomberg’s $1.3 trillion to McKinsey’s $4.4 trillion by 2032, the AI sector has enormous potential. Over the next ten years, AI-related yearly profits might surpass $1 trillion, according to UBS.
- With almost a billion knowledge workers worldwide, productivity gains from AI tools are predicted to fuel this increase. For instance, generative AI can make customer support operations 30–50% more efficient, while developers utilizing AI tools like GitHub Copilot can code up to 55% faster.
- The enabling, intelligence, and application levels make up the three tiers of the AI value chain that UBS describes in its investment framework.
- The physical infrastructure required for training and executing generative AI models, such as AI data centers, is included in the enabling layer. By 2027, UBS predicts that annual capital expenditures for this tier will total $331 billion, primarily from investments in data center infrastructure and AI servers.
- AI servers most likely take up the majority of the value in the enabling layer, according to UBS.
- The majority of businesses will probably employ cloud services to access computing resources due to the size of AI computation. Thus, by 2027, we anticipate generating $185 billion in value creation.
- Large language models (LLMs) and generative AI algorithms that utilize the enabling layer’s processing capabilities make up the intelligence layer. Because of its fundamental function in AI development, this layer is likely to demonstrate high growth even though it is still in the early stages of monetization.
- UBS noted, “Given its small base, we expect this layer to show the strongest growth into 2027.”
- Finally, according to UBS strategists, the application layer—which comprises AI-powered software applications and services—offers the most profit potential. They did, however, note that it is now difficult to quantify the possibility inside it.
- This layer includes technologies that have already shown considerable productivity advantages, such as AI co-pilots for coding and personal assistants. For instance, Microsoft’s GitHub Copilot, which has 1.3 million users, made over $100 million in revenue in 2023 and increased 40% year over year.
- “We anticipate an acceleration in the creation of software code with developer productivity gains of 50–60%,” strategists wrote.
- According to UBS, the enabling layer of AI presents the biggest prospects shortly. The bank continues to anticipate that throughout the early phases of the cyclical and structural ramp of generative AI, the ratio of applications to the enabling and intelligence layers will indicate limited bottom-line profitability for the application layer.
Source:
investing
