- The Nvidia-led AI boom will spread to three other areas of the stock market, according to Goldman Sachs.
- The bank highlighted the infrastructure stocks that are poised to benefit from more companies adopting AI.
- “We expect there will likely be three broad, subsequent stages of the AI trade,” Goldman Sachs said.
The AI boom has lifted the stock market considerably since the launch of ChatGPT in November 2022, and there are still more gains to be had.
Goldman Sachs said in a Thursday note that not only are stock market valuations not yet approaching bubble-type levels as seen during the dot-com bubble, but they identified the three groups of stocks that are poised to benefit from the growing adoption of AI.
“We expect there will likely be three broad, subsequent stages of the AI trade,” Goldman Sachs said.
Phase one of the AI trade is simply Nvidia, which makes the AI-enabling GPU chips that power chatbots like ChatGPT and Anthropic’s Claude and has seen its stock price soar more than 500% since the start of 2023.
Phase two through four of the AI trade will be much more broad and impact a larger swath of companies.
These are the three next stages of the stock market’s AI trade, according to Goldman Sachs.
Phase two: AI Infrastructure
The second phase of the AI trade will spill over into the infrastructure companies that are necessary to further develop AI advancements.
“Based on our framework, this phase includes semiconductor firms, cloud providers, data center REITs, hardware and equipment companies, security software stocks, and utilities companies,” Goldman Sachs said.
Goldman Sachs identified 93 companies that fit the bill as being an AI infrastructure play. Some of those names include ARM Holdings for its chip design, Taiwan Semiconductor for its chip manufacturing, Cisco for its networking services, and nearly all electric utilities due to the expected increase in electricity demand.
Phase three: AI Enablers
The third phase of the AI trade will positively impact companies that can boost revenues via their adoption and monetization of AI technologies.
“Software and IT Services seem best positioned for this phase of the AI adoption cycle, with many companies describing how their tools will enable other companies to utilize AI,” Goldman Sachs explained.
Goldman Sachs identified 31 companies that fit the bill as being an AI enabler. Some of those names include software companies like ServiceNow, Intuit, and Datadog, and IT Services companies like Snowflake, Accenture, and MongoDB.
Phase four: AI Productivity Gains
The fourth phase of the AI trade will spark gains in companies that can see significant productivity gains via their adoption of AI.
“Software and Services and Commercial and Professional Services have the largest potential earnings boost from widespread AI adoption via labor productivity,” Goldman Sachs said. “These three industries have a combination of a high share of their wage bill exposed to AI automation and relatively high labor costs.”
The company identified 50 companies that are poised to see the largest labor productivity gains via the adoption of AI. Some of those names include retail giants Walmart and Costco, and health care companies like Tenet Healthcare and Illumina.
