AI monetization is gaining traction, and that's good news for tech margins

Snapshot

• UBS says AI monetization is beginning to materialize.
• Jump in capex means bigtech margins dip in the short term.
• Lower interest rates + a weaker dollar are tailwinds, plus opex will fall.

Analysts at UBS reckon signs of monetization from artificial intelligence are starting to show, and this should help offset short-term margin pressures for 'bigtech'.

Near-term profitability is under strain from rising capital spending, UBS believes, but these costs are an investment in future efficiencies.

The Swiss bank pointed to a rise in capex intensity among major tech companies, now at 21% of revenues compared to 11.5% in 2020, and its analysts forecast that this intensity will remain elevated through to 2030.

Trends are helping the case for long-term returns, meanwhile, because, according to UBS, AI adoption among US firms continues to rise.

Census Bureau data recently showed some industries reaching adoption rates of 25% to 30%.

Indeed, the bank noted Oracle’s $30 billion cloud deal this week, citing it as evidence that large-scale AI-related IT consumption is now starting to generate substantial revenue for incumbent infrastructure stalwarts (like Oracle).