Artificial intelligence (AI) is rapidly advancing, and the tech industry is keen on its potential impact on productivity and profitability.
Interestingly, this wave of AI enthusiasm is not only revolutionizing businesses but also driving a significant rally in the stock market, particularly within the S&P 500.
How the Recent AI Trend Is Affecting the Stock Market
Reuters tells us that DataTrek Research's co-founder, Jessica Rabe, attributes the impressive 9% surge in the S&P 500 this year to a select group of major stocks at the forefront of the AI revolution.
One key catalyst behind their success is the growing popularity of the chatbot sensation ChatGPT.
Tech giants, also big AI adopters such as Microsoft, Google's parent company Alphabet, Nvidia, Apple, and Meta Platforms, have contributed to the index's year-to-date return.
Rabe estimates that the AI frenzy has accounted for 25% to 50% of the gains in these stocks.
This year, Bloomberg reports that AI-focused investors have driven the share price of Nvidia Corp., which manufactures the chips required for complex AI computing duties, up by 96%.
AI-Related Stocks
Reuters also reports that Societe Generale recently analyzed 20 stocks widely held by AI-related exchange-traded funds (ETFs). The findings revealed that the assets under management of these funds have grown by almost 40% this year.
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If these AI-related stocks were excluded from the S&P 500, the index's performance would drop by approximately ten percentage points, pushing it into negative territory for the year.
Manish Kabra, head of US equity strategy at Societe Generale, emphasizes the attractive returns generated by AI-driven stocks and highlights the ongoing appeal of this market theme.
Profit Potential from AI Stocks
Analysts eagerly anticipate the profit potential stemming from advancements in AI, which present new revenue opportunities and productivity improvements.
According to Goldman Sachs strategists, widespread adoption of generative AI could lead to productivity gains that expand profit margins for S&P 500 companies by around four percentage points over a decade.
Despite various challenges, including uncertainties around the US Congress reaching a debt ceiling agreement and concerns about potential economic downturns due to Federal Reserve interest rate hikes, optimism surrounding AI plays a pivotal role in supporting the stock market.
Will AI Prevent a Recession?
Jim Reid, a strategist at Deutsche Bank, shares a strong belief in the transformative power of AI, stating, "We are strongly of the view that AI will change the world" in a note titled "Will ChatGPT prevent the US recession?"
The excitement surrounding AI has translated into significant gains for critical stocks.
Microsoft, the second-largest US company by market value, has seen its share price rise by 32% this year. Microsoft's collaboration with OpenAI, the creator of ChatGPT, has brought Bing's search engine significant attention.
Similarly, Nvidia, the fifth-largest US company by market value and a prominent player in AI with its advanced chips, has experienced a staggering 110% surge in its shares this year.
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