AI To Boost Profits Margins by 4%: Goldman Sachs

May 18, 2023

Artificial Intelligence might be the missing link needed to sustain and grow profit margins in corporate America. According to strategists at Goldman Sachs Group, the revolutionary technology has what it takes to boost net margins by nearly 400 basis points over a decade. The sentiments come at a time when most companies are rushing to integrate AI tools in the race to strengthen their products and competitive edge.

AI and Profit Margins

The remarks come when most companies are under immense pressure amid recession pressure and elevated inflation. The risk of the US economy plunging into recession has seen companies embark on a restructuring drive aimed at cutting operational costs to try and protect profit margins. As a result, tech giants led by Amazon, Google, and Meta Platforms have laid off thousands of staff as they try to stay afloat amid the turbulent economic conditions.

Amid the restructuring drive, generative artificial Intelligence has brought about a ray of hope in helping enhance various operations, much to the satisfaction of many companies. For example, Microsoft has already integrated the AI tool ChatGPT into its search engine as it looks to strengthen its search tool to make it more competitive against Google.

With the integration, Microsoft hopes to draw in more users, a move that should strengthen its search business and make it a key revenue stream. Feeling threatened, Alphabet’s Google has also unveiled Bard, an AI-powered tool that should shrug off any threat ChatGPT poses on its lucrative search business that generates a significant chunk of its profit margins.

AI Integration Frenzy

AI tools are not limited to search tools only. Amazon has also moved to enhance its e-commerce empire by using AI tools to enhance product placement in storage facilities. The company is leveraging technology to study customers’ shopping patterns and store products in facilities where they can be delivered the same day or the next day. It is also using the technology to enhance its logistics network crucial to strengthening its revenue stream.

There were more than 1600 mentions of artificial intelligence technology when US and European companies delivered their first-quarter earnings. The mentions signal the strong belief that the technology will play a key role and help strengthen revenue and profit margins in future while helping safeguard a competitive edge.

Strategists at Goldman Sachs believe investors should focus on investing in high-growth US stocks with high margins, as they will likely benefit the most from the technology. NVIDIA is one of the high-growth stocks benefiting from the frenzy as it is at the heart of producing chips for powering AI technologies. Likewise, they should avoid low-margin growth stocks as they remain under pressure amid challenging economic conditions.

However, it still needs to be determined the actual impact that the technology will have, given the large number of unknown factors. For starters, the regulatory framework remains a gray area, with some people calling for stringent measures as the technology could have severe ramifications for falling into the wrong hands. Tesla CEO Elon Musk has been the most vocal, terming AI a significant risk to the human race if not controlled.

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