DI25003 Growth Potential of AI. V01 200825

 AI could add billions to S&P 500, says Morgan Stanley

Mehreen Khan - Economics Editor

The widespread adoption of artificial intelligence could add up to $16 trillion to the value of the US stock market, according to a leading Wall Street investment bank.

Morgan Stanley said in a major study that it was “fundamentally bullish” about the economic gains from widescale adoption of AI technology and its impact on employment, productivity and market valuation of firms. The bank estimated that AI had the potential to add almost 30 per cent to the long-term valuation of the S&P 500 — a benchmark of America’s largest companies — worth about $13 billion to $16 billion.

“Corporate adoption of AI has the capacity to reshape the future of work. Our analysis suggests S&P 500 companies could accrue annual net benefits totalling some $920 billion,” Stephen Byrd, equity strategist at Morgan Stanley, said. “AI is more than a tool for efficiency. It’s a transformative force that could unlock entirely new sources of growth, productivity and innovation.”

The near $1 trillion savings would “only be the result of at full adoption levels, which would likely take many years to achieve, and we see significant risk of some companies not achieving full adoption levels”, Byrd said.

Companies adopting AI at scale stood to benefit from potential costcutting savings to their workforce, having lower expenses for tasks done by AI, freeing up employees to do more productive work, and generating new sources of revenue and higher profit margins, according to the analysis.

Morgan Stanley said AI’s impact on jobs would depend on whether companies are using “agentic AI” that involves advanced software adoption and does not need to lead to mass job losses, compared with “embodied AI” — where robots can replace traditional workers.

AI optimism and rising earnings have driven the S&P 500 to record highs this month. The stock market boom is being led by the biggest tech-focused “magnificent seven” companies of Nvidia, Microsoft, Apple, Amazon, Alphabet, Meta Platforms and Tesla.

Economists have also touted the potentially transformative nature of AI adoption if it can lead to permanently higher workforce productivity. A recent estimate from the US Congressional Budget Office, an independent forecaster, said that if AI results in higher economic growth and lower inflation, it would prevent the country’s debt ratio from spiralling towards 160 per cent of GDP to stabilise around 100- 110 per cent of GDP.

Analysts at Morgan Stanley said AI was likely to have an overall positive impact on employment, as although some jobs will be permanently lost, these will be outstripped by demand for new skills and efficiency gains in existing work.

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