Investing.com -- Tech stocks have rallied sharply on the back of renewed enthusiasm around recent sovereign AI deals between the U.S. and Saudi Arabia.
UBS strategists see sovereign and enterprise AI customers as a rising force in global AI investment, positioning the segment as the second-largest contributor to capital expenditure (capex) in the field.
The bank estimates sovereign and enterprise AI will account for 17% of global AI capex in 2025, highlighting the accelerating push among governments to build domestic AI infrastructure.
“Major regions across the world have realized the potential of AI and plan to build their own infrastructure to ensure their spending will not only enhance productivity or drive innovation, but also allow them to retain control over data and security,” said UBS strategists led by Sundeep Gantor.
They forecast global AI capex to grow 60% year-on-year to $360 billion in 2025 and a further 33% to $480 billion in 2026. Sovereign demand is viewed as a structural growth driver, with spending spanning AI compute, high-bandwidth memory (HBM), networking, and industrial infrastructure such as cooling and power.
Saudi Arabia’s latest AI compute-related deals were cited as an example of sovereign-led activity picking up pace. These deals, along with other regional announcements over the past year, are “an underappreciated opportunity,” the strategists wrote in a report.
They also note that while the Big 4—Microsoft Corporation (NASDAQ: MSFT ), Amazon (NASDAQ: AMZN ), Alphabet (NASDAQ: GOOGL ), and Meta Platforms Inc (NASDAQ: META )—still dominate overall AI spend, their share is projected to fall from 58% in 2025 to 52% in 2026, as new players like sovereign and enterprise buyers take on a greater role.
Investors who stayed exposed to leading AI names have seen a 24% rebound since the April lows, and UBS sees further room for upside.
“While uncertainty is still abound, we now see upside to our 12% EPS growth forecast for global tech given strong underlying AI fundamentals and easing trade-related uncertainties,” the report continues.
However, the outlook is not without risks. UBS flags potential tariff headwinds, cost pressures from supply chain shifts, and disruption from generative AI applications.
Even so, UBS remains constructive, arguing that “strong AI fundamentals and lessons from history suggest the recovery can last longer.” The bank continues to recommend an “offensively defensive” stance, favoring a blend of cyclical semiconductor names and more stable software and internet firms.