Artificial Intelligence Will Have Big Impact on US Stock Market, Telecom News, ET Telecom

Recent advances in artificial intelligence have fueled optimism about how businesses can operate more productively in the years to come. They are also giving the stock market a big boost.

The S&P 500’s 9% gain this year has been driven by several of the index’s biggest stocks, many of which are at the center of the AI ​​craze sparked by chatbot sensation ChatGPT.

DataTrek Research co-founder Jessica Rabe said five stocks — Microsoft, Google’s parent company Alphabet, Nvidia, Apple and Meta Platforms — are responsible for the overall return of the S&P 500 year-to-date. About 25% to 50% of those gains came from the “artificial intelligence buzz,” she noted.

A recent analysis by Societe Generale focused on 20 stocks widely held by AI-related exchange-traded funds (ETFs), whose total assets under management have grown nearly 40% this year.

According to SocGen’s analysis, removing these stocks from the S&P 500 would reduce index performance by about 10 percentage points, sending the stocks into negative territory for the year.

“AI leaders are the ones getting the best returns,” said Manish Kabra, head of U.S. equity strategy at SocGen. “For a secular subject, it’s certainly fascinating.”

With the rush to develop AI, analysts are licking their tongues at the potential benefits of new revenue opportunities and increased productivity.

Goldman Sachs strategists estimate that generative AI could deliver productivity gains, resulting in an increase in profit margins for S&P 500 companies of around 4 percent in a decade after widespread adoption. increase.

In fact, optimism about AI has become a key factor supporting the stock market in the face of numerous headwinds. Among them are the uncertainty over whether Congress will reach a deal to raise the debt ceiling and avoid a default, and whether the economy is on the verge of a downturn as the Federal Reserve’s rate hikes percolate through the economy. This includes concerns about

“We strongly believe that AI will change the world,” said Deutsche Bank strategist Jim Reid in a memo titled “Can ChatGPT prevent a US recession?” Stated.

Excitement about AI has helped some stocks make big gains. For example, shares of Microsoft, the second-largest US company by market capitalization, are up 32% this year. The software giant made headlines for his partnership with OpenAI, the creator of ChatGPT, and his use of AI to improve his Bing search engine.

Shares of Nvidia, the fifth-largest US company by market capitalization, have surged 110% this year in chips at the heart of the AI ​​excitement.

The Global X Robotics & Artificial Intelligence ETF is up nearly 30% this year.

Investors will be watching next week for developments on the U.S. debt ceiling, as well as corporate earnings, including inflation data and Nvidia’s results.

Other factors are also supporting mega-cap stocks. Among them are U.S. Treasury yields that have fallen from last year’s highs, fears about tech stock valuations easing, and investors seeing megacaps as a safe haven in an uncertain environment.

At the same time, history shows that even the stock prices of potentially transformative technologies are susceptible to price bubbles. The market skyrocketed in the late 1990s thanks to dotcom stock mania, but a few years later it crashed and only a handful of internet names survived.

A BofA Global Research report released on Friday found AI stocks to be a ‘baby bubble’ compared to the much larger asset price moves seen in sectors such as internet stocks and bitcoin over the past few decades. said to be in a state of

Despite this, many investors say AI is not a fad.

King Lipp, chief strategist at Baker Avenue Wealth Management in San Francisco, calls the development of AI a “game changer.” His company owns shares in Microsoft, Nvidia and Alphabet.

“It goes beyond the next shiny object,” Lipp said. “The path to how generative AI will lead to increased revenue for these companies is very clear.”

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