UBS Research: AI Capital Spending at 1% of Global GDP, Far Below Historical Bubble Levels

UBS Research indicates that current capital expenditure on Artificial Intelligence (AI) remains a modest fraction of global GDP, significantly lower than investment levels observed during historical economic bubbles and major technological build-outs. This assessment challenges the notion of an imminent AI bubble, despite some "frothy" equity prices in specific areas. The firm emphasizes that the scale of reinvestment into AI infrastructure is still substantially below past bubble thresholds.

According to a recent UBS analysis, global AI capital expenditure is projected to reach USD 1.3 trillion by 2030, accounting for approximately 1% of global GDP. This figure stands in contrast to historical infrastructure booms—such as railroads, automotive, and telecommunications—which saw investments ranging from 1.5% to 4.5% of global GDP. The report suggests that the current investment pace is sustainable and driven by genuine productivity gains.

UBS analysts contend that while the U.S. stock market exhibits some prerequisites for a bubble cycle, the current AI phenomenon is more "rational" compared to the dot-com era of 2000. Key signals typically indicative of a bubble peak, such as extreme valuations, long-term overheating catalysts, and short-term peak events, have not yet materialized. Corporate balance sheets, particularly those of major tech firms, remain robust, providing a solid foundation for continued investment.

The firm highlights that current valuations in AI-related sectors are not at dangerous levels, with the P/E ratio of the "Magnificent Seven" (excluding Tesla) at 35 times, well below the 45-73 times seen in past bubbles. Furthermore, the proportion of Information and Communication Technology (ICT) investment in GDP is still below its 2000 peak. UBS also notes that current financing for AI investments relies heavily on strong cash flow rather than excessive debt, unlike previous speculative periods.

UBS believes that the disruptive potential of generative AI and its rapid adoption speed are unique, offering significant productivity enhancement. The report suggests that the market's expectation of a temporary 2% boost in productivity from generative AI could support a 20-25% upside in the stock market. This perspective underscores a fundamental difference from past bubbles, where underlying economic fundamentals were often weaker.