The launch of ChatGPT in November 2022 will be a pivotal moment for artificial intelligence (AI), propelling it towards mainstream adoption. According to analysts at UBS, the event will spur significant investment and technological advancements that could impact all economic sectors.
In a recent client note, strategists at the bank emphasized that while AI adoption is still in its early stages, the investment potential is big.
“In the early days of the AI ​​era, we recommend investors focus on companies that are vertically integrated across the entire AI value chain,” they wrote, highlighting companies that combine a clear monetization path with a strong competitive positioning.
The potential size of the AI ​​market is enormous, with Bloomberg predicting $1.3 trillion by 2032 and McKinsey predicting $4.4 trillion. UBS suggests that annual AI-related revenues could exceed $1 trillion over the next decade.
This growth is expected to be driven by increased productivity from AI tools for the world’s nearly 1 billion knowledge workers. For example, developers using AI tools like GitHub Copilot can write code up to 55% faster, and generative AI could make customer service operations 30-50% more efficient.
UBS has outlined an investment framework that includes three layers of the AI ​​value chain: the enabling layer, the intelligence layer and the application layer.
The enablement layer includes the physical infrastructure, such as AI data centers, required to train and run generative AI models. UBS predicts that annual capex in this layer will reach $331 billion by 2027, driven by investments in AI servers and data center infrastructure.
“Most of the value in the enabling layer is likely to be captured by the AI ​​server,” UBS noted.
“Given the scale of AI computing, most enterprises will likely consume computing resources in the form of cloud services, which we expect to generate $185 billion in value creation by 2027.”
The Intelligence Layer consists of generative AI algorithms and Large Language Models (LLMs) that use the computing resources of the Enabling Layer. This layer is still in the early stages of monetization, but is expected to grow significantly due to its foundational role in AI development.
UBS emphasized that “given this group’s small base, we expect it to show the strongest growth through to 2027.”
Finally, the applications layer, which includes AI-powered software applications and services, offers the greatest monetization potential, UBS strategists said, though they added that the opportunity is difficult to quantify at this stage.
This layer is equipped with tools like AI copilots and personal assistants for coding, and has already proven to deliver significant productivity gains: Microsoft’s GitHub Copilot, for example, is expected to generate over $100 million in revenue in 2023, with 1.3 million users and 40% year-over-year growth.
“We expect developer productivity to increase by 50-60 percent and accelerate the creation of software code,” the strategists wrote.
UBS sees the biggest opportunity in the near term in the enabling layer of AI: In the early stages of cyclical and structural growth in generative AI, the bank expects the application layer’s bottom line profitability to be limited, given the ratio of applications to the enabling and intelligence layers.
