Mark Haefele, chief investment officer at UBS Global Wealth Management, discusses the outlook for artificial intelligence in 2025.
Mark Haefele at UBS
Global Wealth Management recently highlighted how 2025
began with tech equities on a roll, consequently he remains
bullish on the AI theme this year.
“The AI rally has helped power two straight years of strong
returns for the NASDAQ Composite, including a 28 per cent rally
last year,” Haefele said in a note. The Magnificent 7 group of
large-cap tech names – Apple, Microsoft, Amazon, Alphabet, Meta,
Nvidia and Tesla – were responsible for more than half of the
S&P 500’s gains in 2024. The NASDAQ”s market cap now exceeds
$32 trillion – with more than $13.5 trillion added in the last
two years.
Some investors have asked whether they should lock in gains
now, given the strong performance and potential headline risks in
2025. While the easy gains in AI might be behind us, Haefele
thinks this rally looks far from over.
“Expect more upward revisions from large-cap tech on AI capex
spending. Last year, continued upward revisions in AI capital
expenditures from the Big 4 tech companies helped keep the AI
rally on track amid periodic questions over its durability,” he
said. Haefele expects the upward revisions to continue in the
near term, leading him to revise up his estimates for their
combined capex growth to reach $224 billion in 2024 (+51 per cent
year-on-year), and $280 billion in 2025 (+25 per cent
year-on-year). While these updated estimates suggest Big 4
spending could rise to match their historic peak capex intensity
level, as measured by capex divided by sales, Haefele thinks
fourth quarter 2024 earnings could potentially reveal further
increases in guidance and commitments above this.
“Big tech firms will likely make more headway in monetizing their
AI spending this year,” he said. While AI revenues are likely to
lag again behind capex in 2025, he sees evidence that AI
monetization is primed to improve sharply in 2025. “Cloud growth
is accelerating for the leading three platforms, and a solid
backlog supports AI monetization hopes. AI adoption is picking up
across industries and is set to broaden in 2025, and the arrival
of more clearly useful AI agents should further support return on
investment (ROI),” he continued.
Haefele anticipates that the gap between AI capex and revenues
will narrow in 2025. Companies adopting AI will use it to both
increase their revenue and reduce their costs, which speaks to
the utility of economic value add from AI as a key metric for
monetization.
Haefele believes that AI valuations aren’t as stretched as one
might think. “Over the past two years, most of the gains in AI
stocks have come from impressive earnings performance, not from a
significant expansion in price-to-earning ratios,” he said. “In
fact, many AI stocks have seen their P/E multiples decrease even
as their shares have risen, indicating a relatively more healthy
market dynamic.” He anticipates that this revenue-led rally
will continue in the year ahead, with his forecast for robust
earnings growth near 25 per cent in 2025. While he sees several
positive and negative drivers that could potentially change AI’s
valuations, he thinks strong underlying EPS growth should be
enough to support solid near-term share price performance.
“So, with a strong near-term visibility for tech, we remain
bullish on the AI theme and maintain our positive view on AI
semiconductors and leading cloud platforms. We remain
constructive on quality large-cap AI names in particular, with
strong seasonality in the first quarter another near-term
driver,” Haefele said. While it will remain essential to monitor
regulatory risks, such as export controls, ahead, he believes
that any significant corrections on geopolitical or regulatory
developments could offer attractive buying opportunities.
“Investors should consider leveraging bouts of volatility via
structured strategies or by purchasing quality AI stocks on dips.
Within US equities, we rate the information technology sector as
most preferred, and we expect improved breadth and wider
participation in the tech rally this year,” he continued.
Although UBS has been flagging US-China regulation and
geopolitics as a risk to sentiment in 2025, Haefele doesn’t think
this will overshadow strong earnings growth in key tech sectors.
“Investors should be prepared for heightened headline volatility
into the early months of the Donald Trump administration, and
consider utilizing structured strategies to build up long-term
allocation if their quality tech exposure is insufficient,”
Haefele said.
AI is also expected to play an important role in wealth
management, with many wealth managers seeing AI as
complementing the banker’s role, rather than replacing it,
helping them to target their services more effectively. Benefits
of AI range from automating repetitive tasks, providing
data-driven advice in specific areas such as portfolio
optimization, risk management and tax analysis. This news service
has also marked AI as a key theme in our
forward features calendar for 2025.
