Over the past few months, Paul, can we get a good glimpse of AI adoption in the macro numbers yet?

We-- We're trying to look at it in a couple of ways.

The first is survey data from the Census Bureau shows that about a quarter of businesses have adopted AI, and that could go to around thirty percent by Q one if current trends hold.

Other prime market indices, uh, such as the RAP AI Index, which actually measures the spend that businesses are having on AI models, suggest that number is m-much higher, around seventy percent.

We think that the number is somewhat in the truth, but the bottom line is more and more businesses are adopting AI in their, in their business practices.

And that's really fueling the demand, uh, and justifying the CapEx plans for all these hyperscalers.

So CapEx plans I think we're around five hundred billion at the start of the year.

What are CIO's expectations, and what are the implications of certain outcome scenarios to the small business landscape?

What have you been seeing?

Yeah.

So Dan, uh, just a step back.

This presentation, CEO Macro Briefing Book: Insights on AI, is just one of the latest presentations we have on AI.

Recent-- Earlier this year, the asset allocation team came out with, um, AI Economy: A Roadmap, showcasing how we're seeing how AI affects both macro and markets.

This is a more targeted presentation.

It's basically ten questions that we're hearing from our clients, um, about the state of AI and adoption.

Do you believe that's reflective of lower demand?

At this stage of the year, Paul, what phase is the economy in right now?

So we titled the most recent publication Embracing Uncertainty.

So while the economy, the stage of the economy hasn't changed from Q2 to Q3, I think there's a large degree of uncertainty that comes between, uh, between quarter to quarter.

One of it clearly is what's the direction of markets and rates doing amidst the gyrations in the current geopolitical conflict, and that's a question that businesses have to deal with since we're seeing the costs of the conflict come into the producers' price index, which producers very clearly watch.

And for any importers right now, it's very clear that computer accessories and energy are very big inputs.

So we have quite inflation being running ahead of what the Fed would like, ahead of the two percent target for both businesses and consumers alike.

But spending has also held up, so we're still in a reflationary part of the regime.

What types of indications have you been picking up on? Any notable impact to speak of?

As summer continues to heat up, we look under the hood of the U.S. economy to bring the insights that business owners need to know.

My name is Paul Hsiao, and I'm part of the asset allocation team as UBS CIO.

While the current economic regime is still in reflation, where growth and inflation are above trend, we expect both growth impulse to cool in the second half of the year and for a disinflation trend set to continue.

We expect the broad consumption trend to slow in the second half of the year, and there's growing evidence of a K-shaped economy.

So upper-income owners appear to be driving increasing share of consumption, helped by buoyant financial markets, and we observed that happening in both macro and micro trends.

For example, upper-end hotels are outperforming lower-end hotels, and the same thing is said for retailers.

What is this, and what are some speed bumps that you may foresee?

Certainly.

So, uh, Jason mentioned how, uh, we have a lot of investment with the idea that, uh, AI will be a productive force, uh, not only for the overall economy, but for profit margin for firms.

And CIO is estimating that in twenty-thirty, we think that AI-related revenue globally could reach as high as, uh, three point one trillion.

So to get there, what we think the, what we call the AI flywheel is basically sort of a virtuous cycle for AI investment.

First, uh, the bucket we- we're calling productivity.

Basically, what can AI do? We've gone from really, you know, text-based sort of responses back in twenty twenty-two with the ch- release of ChatGPT to a lot more complex functions that are- On the verge of, if not already replacing a lot of task work that, um, companies w-use, um, on a daily basis across today.

It can be across the full spectrum of asset allocation.

What is this and what are some speed bumps that you may foresee?

Certainly.

So Jason mentioned how we have a lot of investment with the idea that AI will be a productive force, not only for the overall economy, but for profit margin for firms.

And CIO is estimating that in 2030, we think that AI-related revenue globally could reach as high as $3.1 trillion.

So to get there, what we think the – what we call the AI flywheel is basically sort of a virtuous cycle for AI investment.

First, the bucket we're calling productivity.

Basically, what can AI do? We've gone from really text-based sort of responses back in 2022 with the release of ChatGPT to a lot more complex functions that are – on the verge of, if not already replacing a lot of task work that companies use on a daily basis across the day.

It can be across the full spectrum of asset allocation.

Paul, how did American-style capital markets show its influence in that circumstance?

I think looking back, railroads made sense because it was able to traverse a lot of land in a more cheaper and efficient manner than other forms of transportation, particularly sea, which is a lot more difficult.

And because America is just this huge landmass, right, it was really critical to have this infrastructure built.

But railroads are also really expensive at the time.

And in order to have this infrastructure build out, it took either equivalent or a little more than the federal budget.

And remember, back then, America was still very much in a state system where – It seemed a lot more like a sovereign entity than it is today where the federal system is a lot more, I would say, expansive than it was back in the 1800s.

So it posed a question to investors.

So if we fast forward a couple of hundred years linking this to a modern perspective, AI, artificial intelligence, how have American capital markets been a driver in that circumstance, Paul?

Mm

... than it is today, where the federal system is a lot more, um, I would say, expansive than it was back in the eighteen hundreds.

So this is-- so it posed a question to investors: How are we able to, to do this? And it really took, you know, the combination of entrepreneurs, the banking system, uh, but also a lot of, uh, honestly, like bond salespeople that were able to harness the private demand domestically, but also public and private demand internationally in order to fund these, uh, large infrastructure projects like the railroads.

So as a result, you know, in the, I think, early to mid, um, eighteen hundreds, you had the US really take off when it comes to mileage built when it comes to railroads versus its other peers in Europe, which in my opinion, had a more rigid banking system that wasn't able to distribute risk and raise the capital in that, in that form extent.

And we sort of see this pattern continue, um, you know, from the railroads and going into the twentieth century and even to, to today.

So if we fast-forward a couple of hundred years linking this to a modern perspective, AI, artificial intelligence, how have American capital markets been a driver in that circumstance, Paul?

Yeah, and I think the railroad example is a good historical comparison to have because it is a large, very expansive capital project, right? AI requires a lot of energy, a lot of compute power that the current infrastructure just don't-- doesn't have, uh, whether it comes to just energy systems or data centers, and requires hundreds of billions, if not trillions, to build in the next couple of years to really satiate this demand.

So i-in our opinion, it's very similar to, to the railroad analog.

So when you think about the upcoming midterm elections and more near term, a Kevin Warsh led Fed, how should business owners be thinking about these considerations?

Maybe we'll start in the Fed first, because to me, that's a little more clear cut.

So Walsh has been confirmed by the Senate.

We've had, I think, Jay Powell's last press conference last time where he was asked whether he'd stay on.

And he said he would, which shows that there would be a continuity of leadership at the Fed, even though the chair of the Fed might be rotating seats.

But the overall composition remains still similar, and there has been less pressure from the White House to pursue criminal investigations over J-PAL.

So those are all good things for the Fed's interdependence and general autonomy.

More broadly speaking, are you seeing any evidence or growing evidence of AI influence on U.S. economic activity?

So when you think about the upcoming, uh, midterm elections and more near-term, a Kevin Warsh-led Fed, how should business owners be thinking about these considerations?

Maybe we'll start on the Fed first, because to me that's a little more clear cut.

So Warsh has been confirmed by the Senate.

We've had, I think, Jay Powell's last, uh, press conference last time where he was asked whether he'd stay on, and he said he would, which shows that there would be a continuity of leadership at the Fed, even though, uh, the chair of the Fed might be rotating seats.

But the overall composition remains, uh, still similar, and there has been less pressure from the White House to pursue criminal investigations over, over Jay Powell.

So those are all good things for the Fed's interdependence and, and general autonomy.

Uh, during, uh, Kevin Warsh's testimony, he brought up the fact that he likes, uh, trimmed mean, uh, PCE as his preferred inflation gauge.

More broadly speaking, are you seeing any evidence or growing evidence of AI influence on US economic activity?

What have you been picking up on here in 2026? Is the momentum continuing? Can it continue?

Yeah, I think it can.

I think it's worth putting 2025 in the context of the cycle.

So, you know, M&A has been running at a decent clip in the years leading up to the pandemic, you know, averaging around, I'd say around $2 trillion globally from 2015 to 2019.

And then the pandemic happened, obviously, in 2020.

There was a great shock to the economy and financial system.

M&A went down.

From what you've been seeing, Paul, what is the impact that AI is having on the deal-making space today?

What have you been picking up on here in twenty twenty-six? Is the momentum continuing? Can it continue?

Yeah.

I think, Dan, I think it's worth putting twenty twenty-five in the context of the cycle.

So, you know, M&A has been running at a decent clip in the years leading up to the pandemic, you know, averaging around, I'd say around two trillion globally from twenty fifteen to twenty nineteen.

And then the pandemic happened, obviously, in twenty twenty.

Um, there was a great shock to the economy and financial system.

M&A went down.

From what you've been seeing, Paul, what is the impact that AI is having on the deal-making space today?

What does that look like from your perspective, Paul?

Yeah, I think we can look at this from really two perspectives.

One is from a market perspective where the chief investment office has been calling for a broadening of market performance.

Obviously, we've seen hyperscalers and even private valuations of the LLMs really go to astronomical territories over the last couple of years.

And really, we think that that's the first leg of the AI trade.

Those investing in the picks and shovels of the AI gold rush, so to speak.

And we think that the next leg of the AI trade would go to the parts of the market that we think have been underappreciated, sectors like healthcare, financial services to some extent, even consumer discretionary, where you see more of these companies taking advantage of these productivity enhancing abilities of these AI tools really taken to the enterprise scale.

Does that have any impact on the markets right now?

What have you picked up on, Paul?

Sure.

As we start off the year, I think it's becoming clear to us that the US economy is still fundamentally in a pretty good place.

Yes, the labor market has been quite weak, and that's something that has been reaffirmed by Chair Powell in the most recent, um, FOMC announcement, saying that private, um, jobs growth has been essentially zero to-to-towards the end of twenty twenty-five due to lack of demand and lack of supply.

But overall, the unemployment rate still remains quite low.

Uh, consumption remains robust, and the private investment demands from a lot of companies, due to the AI trade, still remains quite, uh, in a good spot and set to accelerate in twenty twenty-six to meet energy demands.

Um, that all said, obviously the conflict right now in the Middle East has a potential to, to upend some of this trade, and we have seen markets react appropriately with the S&P down year to date.

Does that have any impact on the markets right now?