Goldman strategists see potential profit boom from AI

(May 17): Artificial intelligence (AI) offers the biggest potential long-term support for US profit margins, according to Goldman Sachs Group Inc strategists, who add that there’s high uncertainty around AI’s impact.

AI can boost net margins by nearly 400 basis points over a decade, the strategists, led by Ben Snider, said in a note. This contrasts with other mounting headwinds, such as a potential recession, interest rates, elevated inventory levels and inflation, which make significant near-term margin expansion “unlikely,” they said.

The launch of OpenAI’s ChatGPT late last year has created a frenzy, with companies rushing to introduce competing tools and investors snapping up anything AI-related. There have been about 1,600 mentions of AI by US and European firms in first-quarter earnings conference calls, a record number, according to transcripts analysed by Bloomberg.

Still, the Goldman team notes that predicting AI’s impact is tricky due to the large number of unknown factors surrounding it, such as regulation.

“In addition to the uncertainty around the eventual impact of AI on economic activity, the potential response of government policy to the widespread adoption of AI means the net long-term effect on corporate profits is difficult to predict,” Goldman strategists wrote.

At the end of March, Goldman strategists said investors should buy US growth stocks with high margins, while avoiding low-margin growth stocks even as equity and rates markets were at odds over the likelihood of a recession.