AI Market Surge: Trend Report Indicates Tripled Growth Forecast

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1:03how much we expect this industry to grow into the future. So without further ado, let's jump into it. Swiss banking behemoth UBS Financial Services recently put out a report with a lot of really interesting statistics in there. Essentially, one of the main things is that they anticipate a very massive rise in demand for artificial intelligence over the next five years. So in an analysis note issued on Tuesday, UBS increased its guidance for long-term AI end demand, and they forecast from you know a 20 compound annual growth rate for uh 2020 to 2025 and they have now increased that um to an impressive 61 compound annual growth rate between 2022 to 2027 so obviously that is more than triple what they were previously um predicting and i think that's you know really uh really showing obviously ai isn't this new thing it's not like we just you know this crazy new invention came out and all of a sudden we're going to be building a lot of things.

2:07AI has been a really impressive technology for a long time. And of course, chat GPT going super viral kind of brought that to the forefront for a lot of regular consumers. And because of that, I believe for a lot of venture capitalists and investors. But despite that, the technology has always been very, very useful and it's very integrated into everything. And it has been for the last 10 years. So the fact that just, you know, this year we've decided to triple what our forecast on the usage, I think really speaks to kind of a paradigm shift and an overall market trend that we're going to be seeing in the future.

2:40UBS's Global Wealth Management Chief Investment Officer, America's Solita Marcieli, noted this is what they said. We don't think AI is a bubble given clear use cases and solid long term visibility, but recommend investors consider companies with clear monetization trends. So the announcement really reinforces, I think, the financial potential of this massive industry and this massive sector. AI enterprises have significantly contributed to the global tech market capitalization, which has seen a$6 trillion growth year over year, with AI-related enterprise providing a$2 trillion chunk of that. which, you know, some people might say, hey, you know, that's only 30 % of that.

3:23But like, if you think of every industry on the planet, and 30 % went to AI, that is a pretty significant chunk. So, you know, people are asking, is AI kind of the new goldmine? What does this look like? So according to UBS Global, AI demand is going to balloon from 28 billion in 2022 to a staggering $300 billion by 2027. And the firm pinpoints two critical components of the AI sector, an infrastructure layer and an application and data layer. So while the bulk of current expenditures are in the infrastructure component right now, there is an emphasis on building and training vast data sets. The application and data segment is predicted to grow over the medium to long term.

4:10So Marcelli believes the sector will expand thanks to the innovative use cases of generative AI technologies like co-pilots, imagery, and also big data analytics. And this is what Marcelli specifically said about that. Significant opportunities over the next few quarters include AI co-pilots in office productivity software, rising demands for big data analytics, and AI integrations in image, video, and enterprise applications. So in the analysis eyes, the applications and data sector could bring in$170 billion in revenue by 2027. And that's compared to $130 billion for the infrastructure layer.

4:50So actually, the infrastructure layer won't be bringing in as much according to their predictions. And that, they said, has a compound annual growth rate of 139 % and 38 % respectively. So UBS suggests investors shift their focus to the AI software ecosystem, warning that infrastructure related businesses like NVIDIA currently have high valuations. And this guidance comes even as NVIDIA kind of announced plans to make its cloud-based AI supercomputing software service, GDX Cloud, widely accessible, right? So a lot of people are very bullish on NVIDIA because of that. So, you know, when it comes to kind of shaking the money tree and investments that are kind of currently pouring into AI, I think despite macroeconomic uncertainties and increasing, you know, increased interest rates that we're seeing, you know, in the US, but also globally, I think investments in AI remain really, really strong.

5:47So last week, German software giant SAP disclosed, you know, direct investments into three AI startups, Cohere Anthropic and Alpha Alpha. And this move followed, you know, Microsoft's obviously$10 billion bet on OpenAI in January. I think interestingly, a pitch book and collision survey revealed that 74 % of global VCs invested in AI or machine learning startups over the past 18 months, and 14 % claimed to have made more than six investments in this area. So this is obviously a very hot area and a very big area of focus. So according to research by McKinsey, the number of companies that are utilizing AI has more than doubled since 2017.

6:29And of course, you know, those numbers are a little bit old because I'm almost certain if you when this poll is redone, you know, halfway through this year or even at the end of 2023, this is going to be some massive, massive ships as I believe virtually every company will be using AI. A vast majority, electricians and plumbers are going to be using this to write, if nothing else, blog posts and marketing content. Every single industry, graphic designers, interior designers, all sort of travel agencies, like every sort of business and industry you can imagine will be integrating AI tools and AI workflows into what they're doing.

7:11So I see that number expanding significantly on the next survey. Venture capital funding globally dipped almost 15 % or 50 % in H1 of 2023. And that's according to data from PitchBook. But still, AI startups saw over$40 billion investments in the past six months, including, of course, I mean, people say that a lot, like, oh, man,$40 billion of investments in the last six months. But I think we also need to remember that part of that is Microsoft's$10 billion into OpenAI. So there's 25 % of it. And then of course,$1.3 billion went to InflectionAI. And so I believe that the kind of overall industry decline doesn't seem to have really deterred investors with nearly 68 % claiming their investment pace over the last 18 months is near normal.

8:02But I also think that that's a self-reported and you're definitely going to find a lot of VCs and investors saying, no, no, you know, we're just doing a normal investment pace. They don't want to say like, oh, no, we've slowed down because it's going to make their firms look, you know, weak or seem like they're not able to raise their next round. So I think there's also that kind of psychology behind that 68 % response. So a lot of people have been asking, are we going to see a promising second half of this year? Economic challenges and rising rates obviously have left a big mark on the overall industry.

8:35And I think as investors and companies kind of navigate a world of higher interest rates and fewer exit opportunities, I think they've become a little bit more selective right now, which I don't think is necessarily a bad thing. Obviously, the market in the bull run, in my opinion, was absolutely unconscionable. Companies received money that never should have. Some really big plays were made that shouldn't have. We've seen a lot of shareholder value that was not returned during that kind of time frame and from companies in that time frame. And so I think that maybe pulling back a bit, I think pulling back, it was definitely healthy for the economy overall.

9:13So I think a considerable decline in the number of deals across all stages has been seen with the first seed round seeing a 44 % drop in the US. So I think despite that, many companies likely are going to run low on cash by H2 of 2023. And I think the market may see a moderate pickup in demand as Mary Donfrido, a partner at Bessemer Venture Partners, puts it. She said, more companies will need to come to market to fully finance their plans. So I think this kind of robust outlook for AI amidst these economic challenges that we're currently seeing underlies a really critical role that AI is going to play in shaping the future and also in the market overall in general.

10:01I think companies and investors are betting really big on AI right now. And I think that that is going to bring a lot of big technological innovation and adoption. And I will have to agree with what was said about the AI and what some people are calling the AI bubble. I specifically have to agree with Marcelli when it was said, we don't think AI is a bubble given clear use cases and solid long-term visibility, but recommend investors consider companies with clear monetization trends. I think if you're looking at companies with clear monetization trends, and I think that that is the way to go. I think that, of course, AI is very exciting and new right now.

10:43But I think with its real world applications and use cases and the ability that we've literally seen how much money this is saving companies, how much more effective this is making employees, I fail to see this as the same kind of bubble we've seen in other asset classes with even Web3 and crypto. I think AI is a different player, and I'm really excited to see where this industry goes and the technological advancements we see because of it.