Goldman says everyday companies may benefit more from AI trade’s next phase
Goldman Sachs has the answer for investors looking to find hidden corners in the concentrated U.S. equity market that stand to benefit from the artificial intelligence boom. Stocks have stalled out in recent days amid concern about elevated valuations, persistent inflation that might the Fed’s hands and risks tied to a potential AI bubble. The Dow Jones Industrial Average and S & P 500 fell for a fourth day Tuesday, the longest slide for the S & P 500 since August. Leading stocks in the Nasdaq Composite index , from Meta Platforms to Microsoft to Nvidia , have also fallen this week. But there are hidden needles in the haystack, Goldman Sachs says. “The combination of continued corporate AI adoption and growing concerns about the AI infrastructure complex has increased recent investor focus on the next beneficiaries of the ever-expanding AI trade,” analyst Ryan Hammond wrote in a Tuesday note to clients, noting that the third-quarter earnings season pushed AI capital spending estimates even higher. But amid concerns over stress in the AI ecosystem, Hammond highlighted Goldman’s stock screen for “potential AI Productivity Beneficiaries” that the Wall Street investment bank believes shows earnings tailwinds as corporate AI adoption continues to grow. Companies in the basket have high labor costs that can come down as a result of AI, and have mentioned AI in the context of efficiency or productivity on their second- or third-quarter earnings calls, Hammond said. So Goldman screened for the top 25% of companies in the Russell 1000 index with the highest percentage of their wage costs subject to AI automation, and whose labor costs are the highest as a share of sales. The companies in this basket, including Bank of America and Zillow Group , have enjoyed double-digit returns this year and have more room to run, according to Goldman. “Our screen of AI Productivity Beneficiaries has returned 16% since December 2023, compared with 23% for the equal-weight S & P 500 … however, the stocks have nonetheless lagged the recent trajectory of their earnings, suggesting attractive risk-reward for investors seeking to expand their exposure to AI beyond the infrastructure layer,” Hammond said. Several financials, such as KeyCorp , PNC Financial Services , Bank of America and Affirm , have more than a third of their wage costs exposed to AI-related automation. The financial sector this year is up more than 6%, lagging other areas in the market. Goldman estimates that Bank of America, up 18% this year, could see earning per share improve by 22%. The firm plans to spend $4 billion on new technology such as AI in an effort to boost its bankers’ productivity and bring in more revenue, the company’s chief technology and information officer recently said at a Reuters conference . Bank of America’s 18,000 developers have used AI agents for the past year and have seen huge productivity gains in an effort to streamline mundane tasks, according to Reuters. Goldman is also bullish on IBM , noting its strong productivity gains from AI. The company has replaced 200 of its human resources employees with AI agents, the Wall Street Journal reported earlier this year. Zillow Group is down more than 7% this year but has strong earnings potential, according to Goldman. The company recently announced its Zillow Pro suite of AI-powered tools for real estate agents.
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