The AI boom will power 2 big stock market trades over the next decade, Goldman Sachs says

Matthew FoxAug 22, 2023, 22:22 IST

Business Insider

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The first AI trade has already unfolded in the stock market as investors bid up the "enablers" like Nvidia.
But there's a second, long-term AI trade to be had in the stock market, according to Goldman Sachs.
The "AI trade after the trade" is focused on companies that should see a massive labor productivity boost from AI.

There are two trades to be had in the stock market related to the emergence of artificial intelligence technologies, and investors better pay attention, according to a Monday note from Goldman Sachs.

The promise of AI has taken over the stock market in 2023, helping save it from a painful bear market and catapulting one company to a more than $1 trillion market valuation: Nvidia.

Nvidia is an AI "enabler" and is among the first leg of the AI stock market trade, in which investors bid up companies that are poised to immediately benefit from the technology.

Other stocks that will see big near-term gains from AI include "hyperscalers" like cloud computing giants Microsoft, Alphabet, and Amazon, as well as "empowered users" like Meta Platforms, Salesforce, Adobe, ServiceNow, and Intuit.

But whereas enablers, hyperscalers, and empowered users represent the early AI trade to hit the stock market, there's a second, long-term AI trade that investors can still take advantage of, according to the note.

The bank put together a basket of "AI trade after the trade" stocks that are poised see surging corporate profits from labor productivity gains that are unlocked by the adoption of artificial intelligence technologies.

"The estimated AI-driven earnings boost is likely to occur over the next few years, but should be reflected in stock valuations sooner," Goldman Sachs said. "The broader, longer-term benefit from AI adoption will accrue to companies as they harness AI to improve productivity, leading to greater revenues, higher margins, or a combination of both."

Between 2025 and 2030, Goldman expects AI technologies to take hold within companies and have a noticeable impact on the macroeconomy as adoption picks up.

The bank estimates that the median Russell 1000 stock could see earnings rise 19% on efficiency gains from AI, while about 8% of Russell 1000 firms will see earnings rise more than 60%.

Here are the top 10 companies in Goldman Sachs' second AI trade basket.

10. Tenet Healthcare