Goldman Sachs: AI Could Enhance S&P 500 Earnings by 30% in 10 Years

Goldman Sachs believes that AI could increase productivity by 1.5% annually which can increase S&P 500 profits by 30% or higher over the next 10 years.

While US tech companies are at the forefront of the AI wave – with companies like IBM, Meta Platform, Microsoft, Alphabet, and Amazon announcing AI forays – Goldman Sachs says it’s not sure of the long-term winners.

Goldman Sachs’ senior strategist Ben Snider told CNBC that while tech companies look like the “immediate winners” “the real question for investors is who are going to be winners down the road.”

Snider drew parallels with the tech bubble of the late 1990s and said back then, “it would be very hard to envision Facebook or Uber changing the way we live our lives.”

Notably, most tech companies of that era faded away and only a few like Amazon not only survived but thrived.

Amazon is incidentally using AI in multiple aspects of its business – from improving logistics to integrating AI in new Echo products.

It is also reportedly looking to build a ChatGPT-like search interface and is also hiring engineers for the same.

• Read our guide on buying Amazon stock

Meanwhile, Snider said that factors that led to the expansion of S&P 500 earnings are now fading away – while adding “the real source of optimism now is productivity enhancements through artificial intelligence.”

Goldman Sachs Believes AI Could Lift S&P 500 Profits by 30%

Snider added, “Over the next 10 years, AI could increase productivity by 1.5% per year. And that could increase S&P500 profits by 30% or more over the next decade.”

Notably, companies see AI as a tool to not only increase their revenues but also enhance productivity.

For instance, analysts expect Nvidia’s revenues to get a boost as demand for chips for AI soars. Unsurprisingly, the stock has doubled this year and is the best-performing S&P 500 stock.

Philip Ripman noted investor and fund manager, said that the stock can rise another 5x over the next 10 years.

• Read our guide on the best AI stocks

Microsoft also sees its partnership with ChatGPT’s parent company OpenAI as a key revenue driver.

Also, multiple companies are using AI to structurally cut costs and improve productivity. IBM, for instance, has said that it would no longer hire for 7,800 roles and instead replace them with AI.

Investors are Excited About Artificial Intelligence Plays

Investors are meanwhile bullish on AI plays as is visible in their 2023 price action. Global X Robotics & Artificial Intelligence ET is up over 25% for the year – while C3.ai – which is among the rare pure-play AI companies up 143% YTD.

Billionaire investor Stanley Druckenmiller bought Microsoft and added more Nvidia shares in the first quarter of 2023 and said that these two stocks give him exposure to AI.

Notably, Billionaire investor Paul Tudor Jones also believes that Artificial Inteligence would create the next “productivity boom.”

Joneses and Druckenmiller’s views are at odds with Warren Buffett – who compared AI to “atoms bombs” – and his deputy Charlie Munger who termed it as “hype.”

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