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Investing.com -- Global AI stocks have bounced back from their January lows, as markets reassess the impact of low-cost models like DeepSeek.
According to UBS, the potential disruption appears manageable, with the bank maintaining a mid-teen upside forecast for global AI stocks in 2025. In contrast, Chinese AI stocks have surged recently, but UBS expects more moderate gains ahead.
The global AI rally has been driven largely by the "ChatGPT moment" in late 2022, adding about $13.5 trillion to Nasdaq's market cap, with UBS attributing roughly $9 trillion of that to AI.
Meanwhile, Chinese tech stocks had been lagging until the recent success of DeepSeek, which triggered a $350 billion market cap increase since late January.
UBS analysts see further potential for both markets but caution that the returns might differ.
“We continue to see mid-teen upside for global AI stocks in 2025,” UBS strategists led by Sundeep Gantori said in a note. “For China AI, we see low-teen average returns p.a. over the next three years, as significant upside potential has already been priced in over the past 20 days.
In their AI portfolio, UBS continues to favor semiconductor and cloud platform companies, such as Nvidia (NASDAQ:NVDA), Google owner Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT), with each accounting for 12-14% of the portfolio. For investors seeking exposure to Chinese AI, the bank mentions Tencent Holdings Ltd (HK:0700) and Alibaba (NYSE:BABA) as potential candidates.
UBS's analysis projects global AI spending to reach $500 billion by 2026, with total AI-related revenue hitting a similar figure.
The bank estimates the total end-demand opportunity for global AI at around $1 trillion that year, supported by strong margins—35% on average, with semiconductor margins near 50%.
In comparison, UBS expects AI spending in China to reach $30 billion by 2028, approximately 6% of global AI spending.
Revenue forecasts for China AI stand at $50 billion, giving an end-demand estimate of $80 billion. With an expected 20% operating margin, operating profit could reach $16 billion, significantly lower than the projected $350 billion for global AI.
UBS assigns a 30x multiple to next year's operating profits to calculate potential market caps. By the end of year 3, the bank sees global AI hitting $10.5 trillion, compared to $480 billion for Chinese AI. From current levels, this suggests mid-teen returns for global AI stocks in 2025 and low-teen annualized returns for Chinese AI stocks over the next three years.
“The upside risk is that the recent share price momentum continues in China AI and the remaining 37% upside may be discounted very soon,” strategists noted.
In sum, UBS’s team continues to see an appealing risk-reward profile of mid-teen returns for global AI stocks, bolstering their positive view on the structural AI trend.
