AI-focused technology giants are poised to enter a lucrative spending cycle that could lead to a significant surge in profits, according to a recent analysis by Bank of America.
The investment bank highlighted that the adoption of artificial intelligence (AI) is set to drive a wave of expenditure across various sectors, ultimately boosting the earnings per share of companies listed on the S&P 500.
Bank of America’s strategist, Savita Subramanian, raised her S&P 500 earnings forecast for 2024 to $250 per share, up from the previous estimate of $235. This projection surpasses the average consensus estimate and could result in a 12% increase in corporate profits year-over-year.
Looking ahead to 2025, Subramanian predicted S&P 500 earnings per share to reach $275, indicating a 10% growth from her 2024 forecast. The strategist attributed the recent stock market rally to better-than-expected fourth-quarter earnings and anticipates record profits as AI technologies become more widely implemented.
The bank pointed out that initial investments in AI are driven by tech giants such as Microsoft, Amazon, Alphabet, and Meta, collectively expected to spend $180 billion on capital expenditures this year, a 27% increase from the previous year.
Subramanian emphasized that the investments from these mega-cap companies signal a reinvestment cycle, accounting for a significant portion of their expected earnings growth.
The adoption of AI technologies is expected to benefit various sectors, with semiconductor and networking companies standing to gain the most. Moreover, the increased power usage and expansion of data centers will create additional demand for electrification, utilities, and commodities.
With a robust economy, enhanced productivity from AI, and a surge in domestic investments, the stock market is well-positioned for future growth. Subramanian revised the year-end S&P 500 price target to 5,400, suggesting a potential upside of 5% from current levels.
The bank’s analysis underscores the transformative impact of AI on corporate profitability and highlights the potential for significant earnings growth in the coming years as technology continues to drive innovation across industries.
