UBS's Marcelli: AI rally is far from over

Investing.com -- The AI-driven rally in tech stocks is poised to continue in 2025, according to UBS analysts, despite recent gains that pushed the NASDAQ Composite to record levels.

The bank notes that last year's 28% surge in the NASDAQ was largely fueled by the "Magnificent 7" large-cap tech stocks, which accounted for over half of the S&P 500 's performance.

UBS states: "While the easy gains in AI may be behind us, we think this ally looks far from over."

The bank's analysts pointed to continued upward revisions in AI capital expenditure (capex) by major tech companies.

The "Big 4" tech giants are projected to increase AI-related capex by 51% year-over-year in 2024 to $224 billion and by another 25% in 2025 to $280 billion.

UBS highlights that AI monetization is set to improve sharply in 2025.

They believe cloud growth among the top three platforms is accelerating, and broader adoption of AI across industries is expected to drive a narrowing gap between AI investments and revenues.

"The arrival of more clearly useful AI agents should further support return on investment," UBS notes.

Moreover, they believe that concerns about inflated valuations may be overblown.

UBS analysts observe that much of AI stock growth has been earnings-driven rather than due to expanded price-to-earnings ratios, which have actually decreased in some cases.

They forecast robust earnings growth of 25% for 2025, supporting continued strong performance.

UBS remains bullish on AI semiconductors, cloud platforms, and large-cap AI names, rating the information technology sector as "Attractive." T

They state that underallocated investors should "use bouts of volatility as a means of buying stocks," emphasizing the long-term potential of AI to transform industries and drive significant economic value.

Source: Investing.com