This could be the next big investing trend in AI. How UBS says to play it
ChatGPT’s late 2022 debut may have set off the early innings of the artificial intelligence arms race, but UBS says investors should start focusing on this next leg of growth. “We think the introduction of generative AI to edge devices has the potential to stimulate positive mix changes … and could also pull-in replacement cycles as new devices offer increased usefulness, enabling content creation, productivity and personalization,” wrote analyst Randy Abrams in a Monday note. Edge AI, or AI at the edge, refers to the utilization of AI in edge computing, and its growth should have an immense effect on the technology world over the next few years. The setup allows AI computations to be done locally rather than through a data center or on the cloud. Some of the benefits include faster data access, enhanced privacy and reduced bandwidth costs, UBS noted. In 2024 alone, the firm projects that AI servers represent a $100 billion revenue opportunity, while smartphones, personal computers and internet of things semiconductors equate to $450 billion, $180 billion and $163 billion, respectively. But this is only the beginning. Abrams anticipates a new tech product cycle will emerge between 2025 and 2027. This, combined with the upcoming replacement cycle, could drive revenue at a compounded annual growth rate of 6%, and bring the PC market to $204 billion through 2027, while smartphones could grow from 50 million to 583 million units and $513 billion in sales. “A ramp of more intelligent end points also supports a virtuous circle of more demand for data transmission, storage and processing back in a centralized cloud, still core to service creation and delivery,” he wrote. Given this outlook, Abrams named some of the top companies across technology sectors situated to benefit from AI at the edge. Here are some of the stocks that made the cut: It’s no surprise that Advanced Micro Devices and Nvidia made the cut. Both stocks surged in 2023 as investors bet on their chops underpinning AI models. AMD gained 8% Tuesday on the back of some bullish AI commentary. UBS projects more upside ahead, viewing both stocks among the top semiconductors as best situated to benefit from Edge AI. Memory chipmakers also look poised to benefit from Edge AI as devices on the edge require more computing power. That should bode well for shares of Micron Technology , which UBS views as one of the “clearest immediate beneficiaries.” Outside of chipmakers, UBS favors Alibaba as a potential winner from the edge. The firm says Alibaba is already making strides in generative AI with its embedded shopping assistant and its edge node services on the cloud. MU 1Y mountain Micron shares over the last year “Among Chinese internet companies, we believe Alibaba will benefit from the increasing usage of edge computing in GenAI era, due to its years of research and development in edge computing,” UBS said. Personal computer makers such as Dell have bounced back from a tough 2022 after demand fell off a cliff. But the company has been on the uptrend as demand rebounds, AI server demand booms and commercial customers begin deploying AI PCs later this year and into 2025. Shares rallied more than 90% in 2023. Other stocks that made the cut include OpenAI investor Microsoft , semiconductor testing company Teradyne and Arista Networks .
