A.I. could drive $7 trillion in global growth in 10 years, Goldman estimates. Here's how to play it

Published Tue, Mar 28 20232:11 PM EDTUpdated Tue, Mar 28 20235:16 PM EDT

Generative AI will usher in an era of innovation comparable to the introduction of cloud computing, according to Goldman Sachs. The firm expects the broadest definition of artificial intelligence to drive almost $7 trillion in global economic growth over the next 10 years, with productivity growing by 1.5% over the same period. Within that, generative AI has a total addressable market of $150 billion, Goldman said. "AI is touted to be the next big shift in technology after the evolution of the internet, mobile and the cloud. We believe Generative AI can streamline business workflows, automate routine tasks and give rise to a new generation of business applications," Goldman analysts wrote in a recent research report. Enabled by large language models, innovations like OpenAI's ChatGPT , Microsoft's AI-powered Bing search engine and Google's Bard have renewed the buzz around AI. Traditional AI has been used for more analytical purposes, rather than creative. But generative AI is able to produce new content such as text, video, images or computer code — putting it a step ahead. "Generative AI tools have far-reaching implications across industries, from enterprise software to health care, financial services and more," Goldman said. With the tech giants already incorporating it into their products, Goldman sees generative AI boosting sales, productivity and product innovation. The firm added there will be opportunities for software companies to upsell and cross-sell products with AI. This will help increase customer retention and expand the customer base. How to play it Despite the potential for these tools to spearhead novel businesses and products across the tech industry, Goldman highlighted existing tech giants Microsoft , Salesforce and Adobe as the key leaders in the field. It raised price targets on each of these companies, saying they stand to benefit from recent product announcements and their troves of customer data. Design software maker Adobe last week launched Firefly, an AI tool that will let users type commands to quickly modify and generate images. The company also struck an AI partnership with Nvidia to co-develop a "new generation of advanced generative AI models," some of which will be jointly developed through Adobe's Creative Cloud product portfolio and through Nvidia's Picasso cloud service. Goldman raised Adobe's price target to $480, implying more than 28% upside from where it closed on Monday. The company's stock price has increased by 10% year to date. Microsoft, one of the largest cloud providers, was quick to capitalize on the AI frenzy following the release of ChatGPT. The software giant in January announced a new multiyear, multibillion-dollar investment in OpenAI (after its initial investment in 2019), and subsequently unveiled a new version of its Bing search engine that included a chatbot powered by OpenAI's GPT-4 language technology. In mid-March, it demonstrated how it can roll out AI-powered products across the tech stack as it added generative AI technologies, dubbed Copilot, to its Microsoft 365 suite of business software, including Word, PowerPoint and Excel. The analysts noted this, calling out Copilot variations with Dynamics and Github as well as services such as Teams Premium, its Azure OpenAI Services package and seller-experience application Viva Sales. Analysts raised their price target on the buy-rated company to $325, which suggests the stock stands to gain about 17% from where it closed Monday. Its shares have gained about 14% so far this year. Goldman said Salesforce should benefit from a "front-office productivity boost" by combining generative AI technologies with its products, which would drive longer-term revenue growth, improve sales representative activity and attract more users. Salesforce is able to store swaths of data across numerous industries and clients, giving the software company a unique ability to use generative AI to provide more data-driven insights and actionable tasks for users through its platforms, analysts said. They assigned a $325 price target to the buy-rated company, implying a nearly 70% upside from Salesforce's closing price on Monday. The stock has gained 44% year to date, bouncing back from its losses in 2022. Goldman also highlighted Intuit , Google , Amazon , Nvidia and Facebook-parent Meta as other buy-rated companies that are "best-positioned" to succeed in this up-and-coming space. Already, the recent AI boom has helped to lift these mega-cap tech stocks , holding up the broader market so far this year despite uncertainty caused by the regional banking crisis and concerns about the overall economic outlook. Nvidia has gained 83% year to date, making it the best performer in the S & P 500 this quarter and putting the chipmaker on pace to notch its best quarter since 2001.