- Goldman Sachs recommends investing in companies poised for long-term benefits from AI, which could significantly enhance their earnings per share. This approach contrasts with short-term AI beneficiaries that have already seen substantial returns, suggesting a focus on enduring growth rather than immediate gains.
- The Russell 1000 companies, representing top U.S. firms by market cap, could see a median earnings increase of 19% due to AI integration. This statistic underscores AI’s potential to dramatically boost profitability across a broad range of industries and sectors.
- AI’s influence varies significantly by sector, with some companies projected to experience baseline earnings growth up to 388%. Sectors such as Information Technology and Health Care are expected to see the highest gains, illustrating AI’s transformative potential in these industries.
Goldman Sachs advises stock investors to prioritise long-term AI beneficiaries over near-term ones, highlighting a significant potential for enduring earnings growth. The firm’s analysis suggests that the Russell 1000 companies could see a median earnings per share increase of 19%, with some sectors like Information Technology and Health Care potentially seeing up to 388% growth.
This shift towards long-term investment strategies is recommended due to the already substantial gains captured by immediate AI beneficiaries such as NVIDIA and Amazon, which have contributed to their average year-to-date return of 66%, significantly outpacing the broader market’s 15%.
Long-term AI focus
Goldman Sachs emphasises the strategic importance of focusing on companies that will benefit from artificial intelligence over the long term, rather than chasing the immediate returns of popular, short-term AI players. This perspective is guided by the potential for substantial, sustained growth in earnings as AI technologies are integrated into core business operations.
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Earnings growth potential
The firm projects that the Russell 1000 companies, which encompass the top U.S. companies by market capitalisation, are likely to see a median increase in their earnings per share by 19% due to AI. This substantial potential increase is a testament to AI’s transformative power across various sectors, suggesting significant investment opportunities that could outlast the initial hype around AI technologies.
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Sector-specific outlook
Specific sectors show varying degrees of potential earnings growth from AI, with Information Technology and Health Care standing out with the highest growth prospects. For instance, companies like Guidewire Software could see a change in baseline earnings up to 388%, highlighting the transformative impact AI is expected to have on productivity and operational efficiency in these industries.
Market performance comparison
Comparatively, the performance of AI stocks in the short term has been striking, with near-term AI beneficiaries like NVIDIA and Amazon seeing an average return of 66% this year, substantially outperforming the S&P 500’s return of 15%. This stark difference underscores the market’s enthusiasm for AI capabilities but also signals that the greatest value may lie in the less immediate, more sustainable gains of long-term AI integration. This strategic shift in investment focus from short-term gains to long-term potential is pivotal for investors looking to capitalise on the next wave of technological innovation.
