Goldman Sachs Reveals Top AI Plays for Long-Term Investment
Goldman Sachs has identified its favorite stocks poised to benefit from the advancements of artificial intelligence (AI) in the long run. The bank predicts that AI will enhance worker productivity and corporate revenues, with a "meaningful macro impact" expected between 2025 and 2030. To identify potential winners, Goldman Sachs has compiled a basket of companies from the Russell 1000 that are projected to experience the strongest earnings boost from AI adoption.
Criteria for Selection
Goldman Sachs focuses on larger and more innovative companies with significant workforce exposure, as they are deemed best positioned to anticipate and incorporate the impact of AI before witnessing an uptick in earnings per share. The bank analyzes the share of wage bill exposed to AI automation and calculates labor costs as a share of revenue using median employee compensation. By averaging the results from two scenarios—one assuming stable margins and increased revenue, and the other assuming stable revenues and improved margins—Goldman Sachs determines the potential earnings change from AI adoption.
Stocks that Made the Cut
Among the selected stocks, several well-known technology companies meet Goldman Sachs' criteria. This includes Amazon and Pinterest, which have seen year-to-date gains of approximately 60% and 12%, respectively. Based on the firm's analysis, Pinterest could experience a significant 162% change in baseline earnings due to AI, while Amazon's earnings could rise by 39%. Amazon is actively working on microchip designs to accelerate generative AI and catch up with its industry peers. CEO Andy Jassy has emphasized the transformative power of AI during a CNBC interview.
Software stocks Snowflake and Twilio also made the list, with both expected to witness a more than 100% change in baseline earnings due to AI. Twilio recently reported strong second-quarter earnings and CEO Jeff Lawson expressed the company's focus on achieving more efficient growth.
Outside of the technology sector, Goldman Sachs identifies Walmart and Walgreens Boots Alliance as potential winners in the consumer staples industry. AI adoption could lead to a 44% increase in baseline earnings over time for Walmart, which recently raised its full-year outlook due to heightened grocery and online spending. Illumina and Occidental Petroleum were also included in the selection.
In conclusion, Goldman Sachs' identification of these top AI plays highlights the potential for significant earnings boosts in various sectors. As AI continues to evolve and shape industries, companies that effectively integrate AI technologies into their operations stand to benefit in the long run.
Hot Take: Implications for New Businesses
Goldman Sachs' identification of top AI plays offers valuable insights for new businesses. The bank's focus on large, innovative companies with significant workforce exposure to AI underscores the potential for AI to revolutionize various sectors, particularly in enhancing productivity and boosting revenues.
For startups and emerging businesses, this presents a compelling opportunity. By integrating AI technologies into their operations early on, these companies can potentially anticipate and effectively manage the impact of AI, leading to an uptick in earnings per share. This approach could be particularly beneficial for tech startups and those in sectors where AI can significantly automate processes and enhance efficiency.
Moreover, Goldman Sachs' methodology of calculating potential earnings changes from AI adoption provides a useful framework for new businesses. By considering both stable margins with increased revenue, and stable revenues with improved margins, startups can better understand the potential financial implications of AI adoption.
In conclusion, the rise of AI presents both challenges and opportunities for new businesses. Those that can successfully navigate this landscape, integrate AI technologies, and anticipate their impact stand to reap significant benefits in the long run. As AI continues to shape industries, its role in determining business success is set to become increasingly significant.