The AI application and investment rush is a powerful new narrative for tech. (UBS)

The AI application and investment rush is a powerful new narrative for tech.

  • US tech has outperformed in 2023 thanks to strong investor interest in AI-sensitive stocks and industries.
  • We now forecast a 61% compound annual growth rate (CAGR) for AI end-demand during 2022–27.
  • Near-term catalysts include “copilots” in office software, big data analytics, and AI integration in images, video, and other enterprise applications.

But the story is broader, with more reasons than just AI to be constructive on tech.

  • US tech company balance sheets are strong, a positive driver in a period of high interest rates and slowing economic activity.
  • Earnings revisions are improving, adding to confidence that key end-markets are reaching a trough.
  • Historically, quality growth stocks have tended to perform well during the later stages of the business cycle.

So, we build exposure and position for technological disruption across industries.

  • We now rate the global and US information technology sectors as neutral, suggesting an in-line allocation.
  • We focus on companies with exposure to disruptive technologies and with high growth potential. We see most potential in the highest margin tech industries like software, internet and semis.
  • We prefer exposure in large caps, since we believe the big will get bigger in the AI era. Dynamic investment approaches can best adapt to a fast-changing landscape.

Did you know?

  • The IT segment is the most global of all the S&P 500 sectors. More than 58% of its revenue comes from outside the US, versus 40% for the index as a whole.
  • Disruptive innovation, a term coined by Harvard University professor Clayton Christensen, refers to processes in which a product or service takes initial root in simple applications at the bottom end of a market before moving relentlessly up the value chain and eventually displacing established competitors.
  • We expect AI industry revenues to grow from USD 28bn in 2022 to USD 300bn in 2027, with risks tilted to the upside.

Investment view

We now rate the global and US information technology sectors as neutral, supporting an in-line allocation. Within technology, we think investors should focus on companies with exposure to disruptive technologies and those with the highest growth potential. We like the highest margin tech industries: Software, internet, and semis. We favor exposure weighted toward large caps, since we believe the big will get bigger in the AI era. Following a dynamic allocation approach will likely enable better adaption to a fast-changing tech and AI landscape.


Main contributors - Jon Gordon, Sundeep Gantori, Matthew Carter


Original report - How can I benefit from tech disruption?, 20 October 2023.