Take advantage of the new pool of AI winners

A new crop of AI winners is on the way, and they’re not just tech companies. Companies like JPMorgan and Walmart are also using AI to improve their efficiency and production. That should help its shares in the long term, Nicholas Jasinski writes Barons.

Artificial intelligence exists now hot Among investors. Companies that use them can achieve significant returns on equity in a new cycle. According to Jasinski, we need to look at a broader range of technology companies. As a new technology, AI will be adopted by a much wider range of companies over time.

During recent earnings reports from large and mid-sized US companies, use of the term AI has increased by about 75% year to date compared to the same period last year. This concerns companies from all types of sectors, including media, retail, banking, aerospace and oil and gas.

From developer to user

With every innovative technology there was eventually a shift from developers to users or “adopters.” These are the ones who implement new technologies into their business operations. Among these developers are companies that build AI software models, such as OpenAI, Microsoft, Alphabet, Google, and many others. But this also includes designers and manufacturers of advanced hardware used in data centers that power AI, such as Nvidia, Advanced Micro Devices, Super Micro Computer, and Taiwan Semiconductor Manufacturing.

Finally, this also includes cloud computing giants that manage the infrastructure, such as Amazon.com, Microsoft, and Oracle. So these stocks have benefited from the AI ​​hype. Shares of Microsoft, Alphabet and Amazon have risen 70% or more since the beginning of last year. Nvidia by 465%.

Morgan Stanley has compiled a list of AI developers that have averaged returns of 111% in 2023, compared to a return of just 6% for a group of “certified” stocks. The fate of developers is inherently tied to the fate of adopters, because they are their ultimate customers.

Morgan Stanley’s Edward Stanley believes users who can demonstrate progress on AI initiatives will increasingly be rewarded with higher earnings multiples. These multiples will be justified by wider margins and faster earnings growth.

Where can users be found?

Companies are leveraging AI at different speeds, believes Patrick Kelly (Algeria). The first wave of AI applications are already visible in social media, entertainment, and gaming. Other industries may take longer to achieve the impact of AI, but it will improve productivity.

Meta Platforms has introduced several AI tools for consumers and advertisers in recent months. But Meta’s real benefit comes from its ad targeting models, which analyze massive amounts of data to deliver paid content to interested users. Other digital advertising players, such as Trade Desk and AppLovin, are also benefiting from the application of AI, according to Kelly.

Artificial intelligence is increasingly taking over customer service tasks. Payments service Klarna saw its customer service bot, powered by OpenAI models, conduct 2.3 million conversations in January, making the work of 700 full-time employees more accurate and reducing the average time to resolution from 11 to two minutes. Using an AI assistant could save Klarna $40 million annually.

Artificial Intelligence in Finance, Healthcare and Retail

Financial services companies are automating more back-office compliance functions and complex underwriting processes. JPMorgan Chase has a technology investment budget of $15 billion annually, and 2,000 AI and machine learning experts, led by a chief data and analytics officer who reports to CEO Jamie Dimon.

The potential for enhancing efficiency in healthcare is also great. Insurer UnitedHealth Group is using AI in many areas, from streamlining administrative functions to providing medical insights based on its massive database of prescriptions and medical records. Retailer Walmart has an AI-powered generative search function in its app and also uses AI to optimize inventory based on vast amounts of data about consumers.

Companies that apply AI to their business processes can ultimately shine as brightly as developers. It may be wise to shift the focus from developers to companies that benefit from the application of AI.