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AI'S TRILLION-DOLLAR RACE IS ON, BUT THE FINISH LINE REMAINS UNCLEAR

Technology stocks' AI-fueled rally may still have room to run, but investors should prepare for a shift in market leadership rather than assume today's winners will dominate the next era, UBS analysts led by Ulrike Hoffmann-Burchardi, chief investment officer for the Americas and global head of equities, said in a note on Tuesday.

The ongoing AI wave is not the first of its kind, nor is it the first to shake up tech market leadership, they said.

AI-related capital spending is accelerating across semiconductors, cloud computing, and infrastructure, while UBS says supply constraints and rising monetization continue to support the broader AI trade.

"We see demand for AI tokens, the basic unit of generative AI output, continuing to outstrip supply, leaving compute in deficit even after years of heavy investment," UBS said.

UBS pointed to earlier technology cycles as a guide. In the mainframe era, IBM IBM.N dominated computing, but the shift to the PC redirected value toward Microsoft MSFT.O and Intel INTC.O, the brokerage said.

In the internet wave, infrastructure firms helped build the network, but long-term value accrued to internet-native platforms such as Amazon AMZN.O and Google GOOGL.O. UBS added that "in the mobile era, Apple AAPL.O emerged as a defining beneficiary."

The brokerage said history offers three lessons: that incumbents "rarely win the next era by default," that platforms often "capture the lasting profits," and that when capex booms fade, "the pain is not equally distributed."

UBS said AI capex could reach $820 billion in 2026 and nearly $990 billion in 2027, with more than 85% driven by the big four technology companies.

The brokerage cited Microsoft and Meta META.O as examples of companies that have successfully pivoted, while noting Nortel's bankruptcy and Cisco's long recovery after the dotcom boom.

(Akriti Shah)

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