3 Sectors & 174 Companies Set to Soar as Next Phases of AI Boom as Per Goldman Sachs

Introduction

In the midst of the ongoing AI revolution, the stock market has become a dynamic arena for investors seeking to capitalize on the transformative power of artificial intelligence. Since the inception of ChatGPT in November 2022, the AI boom has not only reshaped industries but also propelled the stock market to unprecedented heights.

However, according to Goldman Sachs, this is merely the beginning, with the potential for further gains looming on the horizon.

In a recent Thursday note, Goldman Sachs delineated a comprehensive framework outlining the evolution of the AI trade, identifying three distinct phases that are poised to shape the future landscape of the stock market.

Phase One: The Nvidia Phenomenon

The inaugural phase of the AI trade is epitomized by Nvidia, a pioneering company renowned for its AI-enabling GPU chips.

These chips serve as the backbone for a myriad of AI applications, including chatbots like ChatGPT and Anthropic’s Claude. Since the onset of 2023,

Nvidia’s stock price has surged by an astounding 500%, underscoring the profound impact of AI on market dynamics.

Phase Two: AI Infrastructure– 93 Companies

The subsequent phase heralds the proliferation of AI infrastructure, encompassing a diverse array of companies instrumental in furthering 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

In the second phase of the AI trade, attention will extend to infrastructure companies essential for advancing AI technologies further.

Goldman Sachs outlines this phase as encompassing semiconductor manufacturers, cloud service providers, data center real estate investment trusts (REITs), hardware and equipment suppliers, security software developers, and utilities firms.

Goldman Sachs has identified 93 companies as key players in AI infrastructure. These include ARM Holdings, renowned for chip design; Taiwan Semiconductor, known for chip manufacturing; Cisco, providing networking services; and almost all electric utilities, anticipating a surge in electricity demand due to AI expansion.

Phase Three: AI Enablers– 31 Companies

In the third phase of the AI trade, companies positioned to boost their revenues through the adoption and effective monetization of AI technologies stand to benefit from positive impacts.

Goldman Sachs indicates that the Software and IT Services sectors are particularly well-positioned for this phase of AI adoption.

Many companies within these sectors articulate how their tools can empower other enterprises to leverage AI effectively.

Goldman Sachs has pinpointed 31 companies as prime examples of AI enablers. Among these are software firms such as ServiceNow, Intuit, and Datadog, as well as IT Services providers like Snowflake, Accenture, and MongoDB.

Phase Four: AI Productivity Gains– 50 Companies

Goldman Sachs predicts that the fourth phase of the AI trade will drive substantial gains for businesses capable of harnessing significant productivity enhancements through AI integration.

Goldman Sachs states that industries like Software and Services, Commercial and Professional Services stand to gain the most from widespread AI adoption, as they will experience significant increases in earnings due to enhanced labor productivity. These sectors exhibit a substantial portion of their wage expenses being exposed to AI automation, along with relatively high labor costs.

The company has identified 50 firms positioned to realize substantial labor productivity improvements through AI adoption. Among these are retail giants Walmart and Costco, along with healthcare entities like Tenet Healthcare and Illumina.

Implications for Investors

Goldman Sachs provides crucial insights into the evolving AI trade. Investors can strategically position themselves within identified phases for maximum gains. Opportunities abound across semiconductor manufacturers, software developers, and beyond. The AI boom promises sustained expansion across diverse industries.

Conclusion

As the AI revolution unfolds, the stock market becomes a fertile ground for investors to plant the seeds of prosperity. Goldman Sachs’ delineation of the AI boom highlights the multifaceted nature of this transformative phenomenon, providing investors with a roadmap to navigate the evolving landscape confidently and with foresight.