Goldman on how to invest in the coming $7 trillion A.I. boom
According to Goldman Sachs, generative AI will usher in an era of innovation comparable to the advent of cloud computing. The company expects the broadest definition of artificial intelligence to drive nearly $7 trillion in global economic growth over the next 10 years, with productivity rising 1.5% over the same period. Within that, generative AI has a $150 billion total addressable market, Goldman said. “AI is being heralded as the next big technological shift after the development of the internet, mobile and the cloud. We believe that generative AI can streamline business operations, automate routine tasks and create a new generation of business applications,” Goldman analysts wrote in a recent research report. Thanks to big language models, innovations like OpenAI’s ChatGPT, Microsoft’s AI-powered Bing search engine, and Google’s Bard have renewed the excitement around AI. Traditional AI has been used for analytical rather than creative purposes. But generative AI is able to produce new content such as text, videos, images or computer code – and is therefore a step ahead. “Generative AI tools are having far-reaching implications for every industry, from enterprise software to healthcare, financial services and more,” Goldman said. As tech giants are already incorporating it into their products, Goldman sees generative AI increasing sales, productivity, and product innovation. Goldman said there will be opportunities for software companies to upsell and cross-sell products with AI. This will help increase customer retention and expand the customer base. How to Play Despite the potential of these tools to power new businesses and products across the technology industry, Goldman singled out existing tech giants Microsoft, Salesforce and Adobe as the key leaders in this space. The company raised its price targets for each of these companies, saying they would benefit from recent product announcements and their trove of customer data. Design software maker Adobe last week unveiled Firefly, an AI tool that allows users to input commands to quickly modify and generate images. The company also formed an AI partnership with Nvidia to co-develop a “new generation of advanced generative AI models,” some of which will be co-developed across Adobe’s Creative Cloud product portfolio and Nvidia’s Picasso cloud service . Goldman raised Adobe’s price target to $480, up more than 28% from Monday’s close. The company’s stock price is up 10% so far this year. Microsoft, one of the largest cloud providers, quickly capitalized on the AI frenzy following the release of ChatGPT. The software giant announced a new multi-year, multi-billion investment in OpenAI in January (after its first investment in 2019) and then unveiled a new version of its Bing search engine that included a chatbot based on OpenAI’s GPT-4 language technology. In mid-March, the company demonstrated how it can introduce AI-powered products across the tech stack by adding generative AI technologies called Copilot to its Microsoft 365 suite of enterprise software, including Word, PowerPoint and Excel. Analysts noted that Copilot called variations with Dynamics and Github, as well as services like Teams Premium, its Azure OpenAI service suite, and seller experience application Viva Sales. Analysts have raised their target price on the buy-rated company to $325, suggesting the stock will gain about 17% from Monday’s close. Its shares are up about 14% so far this year. Goldman said Salesforce should benefit from a “front-office productivity boost” by combining generative AI technologies with its products, which would drive longer-term revenue growth, improve sales rep activity, and attract more users. Salesforce’s ability to store swaths of data from multiple industries and customers gives the software company a unique ability to leverage generative AI to deliver more data-driven insights and actionable tasks for users across its platforms, analysts said. They assigned the buy-rated company a target price of $325, up nearly 70% from Salesforce’s close on Monday. The stock is up 44% so far this year, recovering from its 2022 losses. Goldman also highlighted Intuit, Google, Amazon, Nvidia, and Facebook parent Meta as other recommended buy companies “best positioned” to succeed in this burgeoning space. The recent AI boom has already propelled these mega-cap tech stocks higher and sustained the broader market so far this year despite uncertainty caused by the regional banking crisis and concerns over the economic outlook. Nvidia is up 83% so far this year, making it the best performer in the S&P 500 this quarter and putting the chipmaker on its best quarter since 2001.
