NEW YORK (Reuters) – The U.S. Recent developments in artificial intelligence are boosting excitement about how organisations may become more productive in the coming years. They are also a significant boost to the stock market.
The S&P 500’s (.SPX) 9% gain this year has been driven by a few of the index’s largest firms, many of which are at the centre of the AI fever sparked by the chatbot phenomenon ChatGPT.
According to Jessica Rabe, co-founder of DataTrek Research, five companies – Microsoft (MSFT.O), Google parent Alphabet (GOOGL.O), Nvidia (NVDA.O), Apple (AAPL.O), and Meta Platforms (META.O) – are responsible for the S&P 500’s entire year-to-date performance. She attributes 25% to 50% of such profits to “the buzz around artificial intelligence.”
A recent Societe Generale investigation focused on 20 equities largely held by AI-related exchange-traded funds, the total assets under management of which had increased by about 40% this year.
According to SocGen’s research, removing those companies from the S&P 500 would diminish the index’s performance by around ten percentage points, placing stocks in negative territory for the year.
“The strongest returns are coming from AI-driven stocks,” said Manish Kabra, SocGen’s head of US equity strategy. “It’s certainly appealing as a secular theme.”
The rush of AI advances has analysts salivating at the profit possibilities resulting from new revenue streams and efficiency gains.
According to Goldman Sachs analysts, generative AI might provide productivity benefits that result in S&P 500 corporations increasing profit margins by around 4 percentage points in the decade after broad implementation.
Indeed, excitement about AI is a significant component driving a stock market that is confronting several obstacles. These include concerns about the United States Congress reaching a deal to extend the debt limit and avert a default, as well as concerns that the economy is on the approach of a slump as the Federal Reserve’s interest rate rises filter through the economy.
“We are firmly convinced that AI will change the world,” wrote Jim Reid, a Deutsche Bank analyst, in a paper headlined “Will ChatGPT Prevent the US Recession?”
Some stocks have seen significant increases as a result of the AI hype. Shares of Microsoft, the second-largest firm in the United States by market capitalization, have risen 32% this year. The software behemoth has made news for its collaboration with ChatGPT maker OpenAI and the addition of AI to its Bing search engine.
Shares of Nvidia, the fifth-largest business in the United States by market capitalization, whose processors are essential to the AI craze, have increased 110% this year.
This year, the Global X Robotics & Artificial Intelligence ETF (BOTZ.O) has risen over 30%.
Investors will be watching developments over the US debt limit, as well as inflation data and company earnings, including Nvidia results, next week.
Other variables have aided the performance of megacap stocks. Among them include a drop in Treasury rates from last year’s highs, which has alleviated worries about tech valuations, and investors perceiving megacaps as safe havens in an uncertain climate.
At the same time, as history has shown, even shares in potentially transformational technology are susceptible to price bubbles. A dotcom stock craze boosted markets in the late 1990s, but a collapse a few years later left just a few internet names standing.
According to a research released Friday by BofA Global Research, AI equities are in a “baby bubble” when compared to significantly greater asset price swings observed in sectors like as internet stocks and bitcoin over the previous several decades.
Nonetheless, many investors believe that AI is not a passing fad.
AI advancements, according to King Lip, chief strategist at Baker Avenue Wealth Management in San Francisco, are a “game changer.” His company has stock in Microsoft, Nvidia, and Alphabet.
“It goes beyond the next shiny object,” Lip said. “The path is pretty clear on how generative AI can lead to earnings growth for these companies.”