- AI will continue to lead the markets for the third consecutive year, according to several market experts.
- Investors should consider leaning towards US-based AI companies and AI beneficiaries in the coming year.
- They could include healthcare, cyber security and fintech firms, UBS says.
It looks like the AI ​​hype will continue for the third year in a row.
The technology has polarized investors and market pundits across Wall Street, with some believing it will completely transform the economy and others believing it is creating a stock market bubble ripe to pop.
Regardless of what you think of AI, it has had an undeniable impact on the market. Hardware, Big Tech, anything related to the data center – investors betting on these areas of the market this year reaped handsome rewards.
But technology advances quickly, and today’s AI playbook may be very outdated in the new year. Business Insider compiled views from four Wall Street firms to see what some of the most influential financial institutions think about the future of AI. Here’s what Wall Street predicts for technology and how you can update your portfolio.
4 predictions for AI
AI spending isn’t slowing down
If there’s one thing AI proponents and detractors can agree on, it’s that the technology is expensive to produce.
Building data centers, stacking GPUs, powering AI—all of these don’t come cheap. In 2024, Big Tech companies poured staggering amounts of capital into building AI infrastructure. By the end of the year, Alphabet, Amazon, Meta and Microsoft are likely to have spent $222 billion on AI capital expenditures, a 50% increase from last year, according to UBS.
But that’s just the tip of the iceberg, according to some Wall Street firms.
According to BlackRock’s 2025 outlook, “big tech companies are beginning to rival the US government for research and development spending.”
“We estimate that spending on this infrastructure could reach $700 billion by 2030, equivalent to 2% of US GDP,” the asset manager added.
Expect continued investment in data centers, chips and power systems as AI models become more complex. That means investors who bought AI trading in 2024 should stay invested, UBS argues.
Heading into next year, the bank recommends looking into utilities, as electricity providers powering AI data centers are seeing continued growth in demand. Examples of utility funds include the Select Utilities Sector SPDR Fund ( XLU ) and the Fidelity MSCI Utilities Index ETF ( FUTY ).
AI trading will expand – especially for these 11 investments
AI investment in 2024 was largely determined by what Goldman Sachs calls Phase 1 and Phase 2 AI infrastructure trades. Investors flocked to Nvidia, the Phase 1 superstar stock, as well as Phase 2 AI scoops, including data center and other semiconductor companies. While these trades are clearly still hot, there will be new opportunities to invest in AI as more use cases emerge, many on Wall Street believe.
The year 2025 will see an expanded field of investment opportunities, especially in so-called Stage 3 companies that are monetizing AI and using it to grow their revenue streams, says Goldman Sachs. The bank has identified 11 stocks that are using AI to boost their earnings, according to their latest quarterly earnings call. They include ACV Auctions, Commvault Systems, Cloudflare, Datadog, DigitalOcean, Dynatrace, Fortinet, Gartner, Hubspot, Mastercard and ServiceNow.
UBS also highlights several areas of the market in particular for investors to keep an eye on in the coming years. “We expect successful generative applications of AI in a variety of industries, including healthcare, cybersecurity and fintech,” UBS said.
US stocks will remain the biggest winners
US stocks outperform global markets in 2024 thanks in part to AI.
The huge sums being spent on AI are paying off for US companies. According to Apollo, the US has more data centers than all other major countries combined, giving it a significant advantage in the industry.
“The United States is experiencing a surge in corporate spending and research on the back of the artificial intelligence (AI) revolution — a dynamic not seen in other developing countries or even China,” wrote Torsten Sløk, chief economist at Apollo. in 2025 of the firm. opinion.
Strong AI investment may be part of why the overall US economy has performed so well.
“The federal government’s investments in green energy and infrastructure, together with private sector investments in AI, have been crucial to the country’s economic sustainability,” added Sløk.
The boom in construction from the construction of AI infrastructure, as well as the ongoing energy transition to power data centers, is a powerful headwind for the US economy and AI trade that will begin in 2025. Therefore, BlackRock I’m betting on US stocks going up in 2025.
“We think the AI ​​megaforce will benefit most from US stocks and that’s why we remain overweight, especially relative to international peers such as European stocks,” the asset manager wrote in its 2025 outlook.
Some examples of US-based AI funds include the Xtrackers Artificial Intelligence and Big Data ETF (XAIX) and the iShares US Technology ETF (IYW).
Artificial intelligence can help reduce inflation
AI can have an overlooked benefit for the stocks in your portfolio: it can lower inflation. According to BlackRock and UBS, the technology has the potential to usher in a new era of labor gains and productivity for the economy.
As more companies adopt AI tools, routine tasks will be automated and new business models will be implemented. This will lead to lower inflation as the supply of goods and services increases, thanks to automation. This will not be an immediate change, but a shift that emerges slowly over the next few years, UBS said in its 2025 outlook.
This is a promising side effect of AI, especially as the Federal Reserve has struggled to contain inflation in 2024 and some economists speculate that inflation may remain elevated in the long term.
“If AI’s potential can be realized, we believe it could herald a productivity revolution and contribute to lower prices for various goods and services and higher rates of economic growth,” UBS said.
“For investors, at a macroeconomic level, we believe the AI ​​revolution is likely to help reduce inflation, boost growth and therefore result in higher real interest rates in the years ahead,” the bank added.