How to invest in AI amid AI spending worries?

UBS strategist Matthew Carter advises investors to diversify their AI exposure beyond a handful of technology giants due to growing concerns about capital expenditure and its impact on returns. The latest technology selloff highlights the scrutiny surrounding how companies fund AI infrastructure and whether the investment will translate into revenue, profits, and cash flow.

Despite this, UBS expects AI capital spending to reach $1.5 trillion by 2028, favoring companies with strong balance sheets, pricing power, and established customer demand. Investors should consider a broader AI allocation, including semiconductor manufacturers, cloud providers, software developers, electricity and cooling suppliers, grid operators, and companies aiding businesses in adopting AI.

Geographic diversification is also crucial, with Asian companies supplying memory chips and semiconductor components, and European industrial groups benefiting from electrification, automation, and data center construction.

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