Artificial Intelligence: The New Catalyst for Stock Market Growth, Citi Predicts

JJohn August 29, 2023 10:42 PM

Citigroup strategist, Scott Chronert, anticipates that artificial intelligence will be the next major driving force in the stock market. He predicts AI will become a core aspect of various businesses within two years, positively impacting earnings through cost savings and productivity enhancement.

Second wave of AI to lift stock market

Scott Chronert, a strategist at Citigroup, believes that the first wave of artificial intelligence breakthroughs primarily benefited companies like Nvidia Corp., which is heavily involved in the AI sector. However, he asserts that the upcoming second wave will have a more broad-based impact, lifting the entire market. This, he states, is a typical pattern when it comes to technological innovation, citing examples such as the 19th-century railroads and the Internet. What makes AI unique, though, is the speed at which it is likely to become ingrained in various business operations, with Chronert estimating a timeline of just two years.

Chronert suggests that the adoption of AI technology by the majority of Corporate America could lead to better real-time management of their businesses. This, in turn, is likely to result in less earnings volatility and possibly even a decrease in cyclical volatility. He sees this trend as an extension of an already established movement towards greater use of technology in business operations and anticipates that it will give the market a fresh avenue for growth.

AI fueling stellar stock performance

The rise in excitement around artificial intelligence has already started to show its impact on the stock market. This is clearly evident in the case of Nvidia, a company central to AI developments. The company's shares have tripled on the back of robust sales of its high-powered computer chips, which are being widely used by companies investing in AI technology. Despite some concerns about the scale of the run-up and potential future rate hikes from the United States Federal Reserve, Nvidia remains the best-performing stock in the S&P 500 index.

Wall Street banks are showing a high level of optimism about the potential of AI, particularly when it comes to its future applications in the stock market. They are actively exploring which sectors stand to benefit the most from this emerging technology. For instance, strategists at Goldman Sachs Group Inc. predict a substantial increase in the earnings per share of the companies they're tracking that are poised to benefit the most from AI.

Broad impact of AI on stock prices expected

According to Chronert, the first-quarter earnings revealed a rush into anything AI-related, with large companies like Microsoft Corp. and Inc. planning to deploy the technology. He believes that the second quarter shifted the focus to how this impact will be felt more broadly. This sets the stage for AI to start influencing a wider array of stock prices. Based on these developments and increasing optimism that the Fed can engineer a soft landing for the economy, Chronert upgraded his year-end target on the S&P 500. However, he also anticipates further market volatility.

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