The launch of ChatGPT in November 2022 marked a key moment in artificial intelligence (AI), pushing it into mainstream adoption. According to UBS analysts, this event has spurred significant investment and technological advancement, with potential impacts across all economic sectors.
In a recent note to clients, the bank’s strategists noted that while AI adoption is in its early stages, its investment potential is significant.
“At the dawn of the AI era, we recommend investors focus on vertically integrated players across the AI value chain,” they wrote, highlighting businesses that combine clear monetization paths with strong competitive positioning.
The potential size of the AI market is huge, with estimates ranging from Bloomberg’s $1.3 trillion by 2032 to McKinsey’s $4.4 trillion. UBS suggests that annual AI-related revenue could exceed $1 trillion over the next decade.
This growth is expected to be driven by productivity improvements from AI tools for knowledge workers, who number around 1 billion globally. For example, developers using AI tools like GitHub Copilot can code up to 55% faster and customer service operations can become 30-50% more efficient with generative AI.
UBS outlines a three-layer investment framework of the AI value chain: the enablement, intelligence and application layers.
The enabling layer includes the physical infrastructure, such as AI data centers, needed to train and run generative AI models. UBS predicts that annual capital spending for this layer will reach $331 billion by 2027, driven by investments in AI servers and data center infrastructure.
“Most of the value in the enablement layer is likely to be captured by AI servers,” UBS notes.
“Due to the scale of AI computing, most companies are likely to consume computing resources in the form of cloud services. As a result, we expect to generate $185 billion in value creation to be generated by 2027.
The intelligence layer includes generative AI algorithms and large language models (LLM) that use computational resources from the activation layer. Although still in the early stages of monetization, this layer is expected to show strong growth due to its fundamental role in the development of AI.
“We expect this layer to show the strongest growth in 2027 given its small base,” UBS noted.
Finally, the application layer, which includes AI-powered software applications and services, offers the greatest monetization potential, UBS strategists said. However, the opportunity within it is difficult to gauge at this stage, they added.
This layer contains tools like AI co-pilots for coding and personal assistants, which have already demonstrated significant productivity gains. Microsoft’s GitHub Copilot, for example, generated over $100 million in revenue in 2023 and grew 40% year over year with 1.3 million users.
“With developer productivity increasing by 50-60%, we expect an acceleration in software code creation,” the strategists wrote.
For the near term, UBS said it sees the biggest opportunities in the potential layer of AI. The bank still expects that the ratio of applications to the enablement and intelligence layers will mean limited profitability for the application layer during the initial phases of the cyclical and structural ramp of generative AI.
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