Transformational innovation opportunities
We believe artificial intelligence will prove to be one of the biggest investment opportunities of the decade. Rising energy demand will create transformational opportunities in power and resources.
We expect significant and sustained profit growth in the transformational innovation opportunities of (1) Artificial intelligence and (2) Power and resources. By investing in these areas, we believe investors can earn strong long-term returns.
Sieze the AI opportunity
We expect artificial intelligence to be one of the most important investment opportunities of the decade. We expect high rates of investment to soon be followed by growth in applications, and we expect companies across the AI value chain to generate more than USD 1.1 trillion in revenue by 2027, just five years after the onset of ChatGPT. Investors should focus on both listed megacaps and innovative private companies to capitalize.
Recent years have seen capex on artificial intelligence increasing sharply.
By the end of this year, we estimate that four tech companies (Alphabet, Amazon, Meta, Microsoft) will have spent USD 222bn on AI capex in 2024 alone—a 50% year-over-year growth rate. That has been supporting significant growth in earnings for AI chip companies and cloud service providers, both of which are in the enabling layer of the AI value chain.
But we believe there is more room to grow.
By 2027, just five years after the onset of ChatGPT, we expect the enabling layer to generate USD 516 billion in revenue, with AI chip companies and cloud service providers likely to capture most of this value.
We expect strong growth in revenues in the intelligence layer—i.e., large language models—too.
And by 2027, we also expect a directly addressable market of USD 395bn in revenue opportunities for the application layer. We expect successful generative AI applications across a range of industries, including in health care, cybersecurity, and fintech. The commercial effects of AI adoption could range from shorter drug discovery cycles (health care), to lower cost bases (financials) and greater demand for security and infrastructure safety (cybersecurity).
How should investors position?
- First, investors should ensure they are sufficiently invested. The sheer pace of growth in the industry means that investors who were underallocated before have become even more underallocated. We believe a neutral allocation to artificial intelligence would involve allocating around 25% of an equity portfolio to stocks with a high degree of exposure to the technology.
- Second, for now, tilt toward the enabling layer. We believe this segment currently offers the best mix of attractive and visible earnings growth profiles, strong competitive positioning, and reasonable valuations. We favor the semiconductor companies that benefit from the current investment in AI infrastructure. This includes not only leading US fabless chip designers, but also Taiwanese foundries with a strong technological edge and limited substitution risk posed by competitors, enabling them to better mitigate any potential tariff hikes. We believe specific opportunities in the application layer will become clearer over the coming years.
- Third, diversify investments between listed megacaps and innovative private companies. The AI rush so far has been highly beneficial for the largest tech firms. We believe this is a feature of the new AI investment landscape, and we expect an oligopoly of vertically integrated “foundries” and monolithic players to dominate. But we also see appealing opportunities in non-listed companies in areas including LLMs, software, and data centers, for investors willing and able to bear the risks inherent in private market investing, including illiquidity.
Invest in power and resources
We believe the power and resources field is set for transformational growth, offering significant investment opportunities across power generation, grid infrastructure, and natural resources as the world adapts to increasing electricity demand.
The rise of AI data centers, industrial electrification, electric vehicles, and global climate goals is increasing electricity demand. We estimate that electrifying the economy will require USD 3 trillion annually by 2030, benefiting companies in power and resource innovation.
The electrification value chain includes raw materials, generation, storage, transmission, distribution, and consumption (e.g., data centers, transport, heating, and cooling). Currently, we believe the best opportunities are in transmission, distribution, data centers, transport, and energy storage.
Consumption: Data centers as growth accelerators
Large AI data centers are significantly boosting electricity demand. A single NVIDIA GB200 GPU can consume as much power as an average US household in a year, and a server rack can hold 72 GPUs. Cooling a modern hyperscale facility can require transferring heat equivalent to melting 40,000 tons of ice daily. The Electric Power Research Institute projects data centers could use up to 9% of US electricity by 2030, up from 4% today. We also expect growth in electric transport, heating, cooling, and energy efficiency equipment.
Transmission and distribution: Strong growth ahead
We anticipate the transmission and distribution segment to experience the strongest growth within the electrification value chain. A decade of underinvestment has left grids in developed markets needing significant upgrades. Emerging markets also require extensive buildout to meet rising electricity demands. The shift toward smaller, less centralized generation necessitates further investments in grid modernization, including sensors, digital technologies, and load management software. Also, as the electric intensity of households and businesses increases, more equipment, transformers, and switchgear will be needed.
Raw materials: Demand for transition metals
Electrification and renewable energy will increase demand for metals like copper and aluminum in our view, which are crucial for electrical components and renewable technologies. Companies with strong resource bases and efficient production are likely to benefit.
Generation and energy storage: Challenging fundamentals
We expect long-term growth in electric generation technologies, including renewables, natural gas/hydrogen, and nuclear energy. However, developing new capacity is complex and time intensive owing to land, capital, financing, and grid management needs. Equipment demand could lead to excess capacity, and tariffs may affect supply chains. Companies with strong financial health and competitive advantages in solar, wind, nuclear, and natural gas-hydrogen technologies should be prioritized. Emerging technologies like advanced battery storage and small modular nuclear reactors can offer immediate growth opportunities.
Explore more of the Year Ahead 2025 report
Year Ahead
In our base case, we expect sustained economic growth in the US, supported by healthy consumption, loose fiscal policy, and lower interest rates. Tariff threats are a headwind for Asia and Europe. If imposed, they could be partially offset by reactive stimulus measures in China. We expect growth in Europe to modestly improve as interest rates fall
A Trump presidency, coupled with Republican control of Congress, has the potential to reshape the global economic and geopolitical landscape. Key policy areas in focus for investors include tariffs, fiscal policy, deregulation, monetary policy, and international relations.
Decade Ahead
The 5Ds—debt, deglobalization, demographics, decarbonization, and digitalization—will be significant forces in the decade ahead that present opportunities and risks for investors. In aggregate, we expect them to lead to higher growth and periods of higher inflation over the long term.
Since the beginning of the decade, cash returns have struggled to surpass inflation and bonds have faced headwinds from rising interest rates. In contrast, equities have thrived, and private markets and commodities have offered robust returns. Looking ahead, we expect equities and private markets to continue to offer the highest potential returns.
Top investment ideas
Entering 2025, we believe stocks still have more to go, with our base case expectations of growth (despite tariffs), lower interest rates, and AI advancements. In fixed income, we think there is an opportunity to lock in yields for quality bonds. In currencies, while the dollar may remain strong in the short term, we believe it is looking stretched and advocate for selling it at further strength. We also like gold as a diversifier. Finally, we think the global real estate outlook looks promising.
Taking a step back, while these investment ideas present compelling cases for immediate action, developing a strategic plan that links goals with strategies can improve investors’ chance of success and help them stay focused on the bigger picture amid potential market turbulence.
Forecasts
We aim to provide the direction of travel for the economy and asset classes against a wide range of market outcomes ahead. The upside scenario would see lower taxes, deregulation, and trade deals adding to a positive market narrative built on solid growth and continued investment in artificial intelligence, while the risk scenario is that trade tariffs, excessive fiscal deficits, and geopolitical strife will contribute to higher inflation, weaker growth, and market volatility.
Are you a client?
Not yet a client?
Disclaimers
Disclaimers
Year Ahead 2025 – UBS House View
Chief Investment Office GWM | Investment Research
This report has been prepared by UBS AG, UBS AG London Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Singapore Branch, UBS AG Hong Kong Branch, and UBS SuMi TRUST Wealth Management Co., Ltd.
