UBS has raised its forecasts for artificial intelligence (AI) spending, but warned investors not to rely too heavily on a handful of technology stocks.
The Swiss bank's wealth management arm now expects global AI capital spending of $1 trillion in 2026, $1.4 trillion in 2027 and $1.5 trillion in 2028.
It believes AI investment will remain a positive driver of global stock market returns next year, supported by strong cloud growth and continued demand for computing power.
Questions over returns
The upgrade comes after a sharp sell-off in technology shares last week.
Investors are no longer asking only how much companies will spend on AI, said Matthew Carter, a strategist at UBS's Chief Investment Office.
They now want to know how that spending will be financed and whether it will generate decent returns.
Some large technology companies reported negative free cash flow last quarter as investment rose, while heavily indebted providers of specialist computing infrastructure came under pressure.
UBS expects a wider gap between winners and losers as the AI cycle matures.
The market is separating companies with healthy finances, pricing power and visible demand from those that depend on borrowing or need their infrastructure to run at consistently high levels.
Spreading the risk
The bank advised investors whose technology holdings have grown rapidly to check whether AI now makes up a bigger share of their portfolio than intended.
Diversifying does not mean abandoning AI, Carter said.
Instead, investors can spread their exposure across chipmakers, cloud providers, software developers and companies supplying power and cooling to data centres.
UBS prefers high-quality companies with reasonable valuations, strong finances and less exposure to surplus capacity.
It also pointed to opportunities outside the US, including Asian chip and memory producers and European industrial groups benefiting from spending on power systems, automation and electrification.
Beyond technology, its preferred sectors are industrials, healthcare and financials, with the eurozone, emerging markets and Asia excluding Japan its favoured regions.
Using volatility
The bank also suggested ways of using market volatility, including capital preservation products, which limit potential gains in exchange for some protection against losses.
More adventurous investors could consider reverse convertibles, which pay a regular coupon but can repay investors in shares if the underlying stock falls far enough.
UBS warned that such structured products carry issuer, liquidity and capital-loss risks, and can result in substantial losses.
