Eugene Mymrin / Getty Images
There's been a noticeable cooling of AI enthusiasm among investors, who are growing wary as companies continue to spend billions on the technology with no tangible payoff.
Or so it might seem.
It's actually quite the contrary, according to Bank of America. AI is slated to revolutionize corporate efficiency and boost S&P 500 operating margins by 200 basis points over the next five years, according to a survey of 157 Bank of America analysts and strategists. While AI bears argue about lack of use cases or a technology bubble, generative AI is on track to transform every area of the economy, the bank says. And it's something investors are underappreciating.
The next five years are shaping up to be huge for AI technology, and investors should expect to see more AI use cases emerge, according to a note written by Head of Americas Software Research Alkesh Shah and his team.
Shah predicts that AI technology will help enterprises shave off an estimated $55 billion in expenses as over 90% of industries globally experience margin expansion.
Bank of America
Software, semiconductors, energy, and utilities top the list, with these industries slated to receive a 2.9% to 5.2% margin boost. Thanks to AI, some software and semiconductor companies could see their revenue increase by 34% and 25%, respectively, over the next five years. The bank's analysts also boldly predict that centers will become largely automated in the next three years.
In Bank of America's view, widespread AI adoption and monetization is likely to happen faster and at a larger magnitude than investors anticipate.
"The industry is advancing at a pace too rapid for us to cover every notable release," Shah wrote. Cutting-edge computer chips are increasingly able to process more information at lower costs. Large language models are processing inputs better by autonomously rewriting prompts.
Indeed, recent technology breakthroughs have slashed the expected years until artificial general intelligence tenfold — from an estimated 80 years in 2019 to a mere eight years in 2023.
Bank of America
For those concerned about a potential AI bubble, Bank of America believes the transformative power of the technology gives ample room for stock valuations to climb even higher in the coming years.
The true upside to AI technology, according to Shah, is "unlikely to be fully priced in."
For the AI skeptics, the revolution is already happening right in front of our eyes. Below are 9 companies identified by Bank of America's analysts and strategists that are already successfully using AI to transform their businesses, drive operational efficiencies, and add shareholder value. With so many use cases coming to fruition a mere 18 months after ChatGPT's debut, the bank believes that generative AI can truly transform the global economy and people's everyday lives.
In the financials sector, JP Morgan (JPM) is developing over 400 generative AI use cases and plans to have a total of 800 by the end of 2024. Morgan Stanley (MS) has rolled out an AI-powered chatbot to assist financial advisors with research, investment ideas, and email drafts.
AI-powered technologies can automatically update financial models and run analyses on data to spit out insights regarding revenue growth, customer concentration, and much more.
Within the payments space, companies like Visa (V) and Mastercard (MA) are using AI to develop fraud-detection tools to great success — Visa prevented $40 billion in fraudulent transactions last year.
The restaurant industry is also pioneering a slew of AI-enabled features that will drastically improve operational efficiency. Sweetgreen's (SG) automated kitchen, dubbed the Infinite Kitchen, is estimated to reduce labor costs by 67% and increase bowl production by 50%, with the potential to drive a seven-percentage-point margin expansion. Starbucks (SBUX) has unrolled a Deep Brew AI platform that optimizes customer experiences, manages store inventory, and remotely diagnoses equipment issues. And Chipotle (CMG) is using an AI-enabled robot called the Autocado to help create the chain's signature guacamole.
In the IT field, IBM (IBM) and Accenture (ACN) are boosting their revenues by providing AI consulting services, generating $1 billion and $300 million in fees, respectively. IBM's AI platform, watsonx, has been incredibly successful in creating operational efficiencies, reducing back office labor requirements by 30% and increasing the HR department's productivity by 40%, Bank of America said.
