Investor excitement surrounding artificial intelligence is expected to remain a prominent theme in the U.S. stock market throughout 2024, propelling the upward trajectory of technology stocks for the remainder of the decade, as outlined by analysts at UBS Global Wealth Management.
UBS Global Wealth Management analysts, led by Solita Marcelli, the chief investment officer for the Americas, emphasized that despite the already impressive performance, the investment outlook for AI and associated sectors, particularly within the semiconductor industry, is projected to endure and even strengthen in 2024. The team conveyed this sentiment in a recent communication to clients.
Projections from the bank indicate a substantial surge in global AI revenue, forecasted to increase by 15 times to \(420 billion by the conclusion of 2027, a significant leap from \)28 billion in 2022. This growth is anticipated to be primarily driven by a heightened demand for AI computing and graphics-processing-unit chips over the next 12 to 18 months.
The optimistic forecast from UBS finds validation in the recent financial results of Taiwan Semiconductor Manufacturing Co. (TSMC), one of the leading players in the chip manufacturing industry. TSMC reported better-than-expected profits and revenue for the fourth quarter of the previous year, with a promising outlook for robust revenue growth in 2024, attributed to the strong demand for high-end chips utilized in AI applications.
Notably, U.S.-listed shares of TSMC witnessed a significant surge of 12.8% in the past week, marking their most substantial weekly gain since November 11, 2022.
UBS analysts, including Marcelli, assert that AI could potentially emerge as the dominant technological theme of the decade, given its unparalleled growth prospects compared to other sectors.
Furthermore, the analysts justify the lofty valuations of megacap technology stocks, highlighting that global semiconductor stocks are presently trading at a premium of approximately 25% compared to their five-year average. Marcelli attributes this premium to the substantial advancements in semiconductor technology over the past five years, their exposure to various mega-trends, and robust pricing power.
Despite the recent challenges faced by U.S. financial markets due to an aggressive monetary-tightening cycle, the S&P 500 achieved a record close on Friday, breaking free from a two-year period of stagnation. This milestone was attained following a month of fluctuating stock performances, with significant contributions from megacap tech firms.
Looking ahead, while concerns often arise when markets hit all-time highs, Marcelli and her team remain optimistic, citing historical data that suggests positive average returns in the years following such milestones. They anticipate a potential consolidation phase in the near term for U.S. stocks, yet foresee continued upward momentum supported by a stable U.S. economy and strong earnings growth throughout 2024.
As of Monday, U.S. stocks continued their ascent, building on the momentum from Friday’s record-setting achievements. The S&P 500 rose by 0.2% to reach 4,851, the Dow industrials climbed by 0.3%, and the Nasdaq Composite surged by 0.4%, according to FactSet data.
