These are Goldman Sachs' favorite AI plays for the long haul

Published Tue, Aug 22 20231:09 PM EDTUpdated Tue, Aug 22 20231:30 PM EDT

Artificial intelligence may only be in its early innings, but Goldman Sachs is naming its favorite stocks to benefit from this disruptive technology over the long haul. The bank expects the technology to improve worker productivity and corporate revenues. It also anticipates "meaningful macro impact" from AI to begin at some point between 2025 and 2030. As the long-term implications start taking shape, Goldman outlined a basket of beneficiaries from the Russell 1000 expected to see the strongest earnings boost from adoption ahead. The firm views larger and more innovative companies with the greatest workforce exposure as best positioned and situated to price in the effect of AI well before experiencing the associated earnings-per-share uptick. To find the winners and the company-specific earnings boosts from AI, Goldman first calculated the share of wage bill exposed to AI automation. Then, it used the companies' median employee compensation to calculate labor costs as a share of revenue. Goldman found the potential earnings change from AI adoption by averaging the results from two scenarios. The first assumed a company maintains stable margins and labor cost expenses but experiences an uptick in revenue. The second scenario anticipate stable revenues and boosted margins. The median EPS boost for the Russell 1000 totaled 19%. Here are some of the stocks that made the cut: A handful of well-known technology stocks met Goldman's criteria for the basket. That included Amazon and Pinterest, up about 60% and 12%, respectively, year to date. Based on the firm's criteria, Pinterest could experience a 162% change in baseline earnings due to AI, while Amazon could experience a 39% rise. The e-commerce giant has been racing to catch up to some of its megacap peers, with the company currently designing two types of microchips for training and accelerating generative AI. Amazon CEO Andy Jassy called AI one of the biggest transformations of our lifetime during an interview with CNBC in July. Software stocks Snowflake and Twilio also made the cut, with both expected to see a more than 100% change in baseline earnings due to AI. Twilio recently reported a second-quarter earnings beat, and CEO Jeff Lawson told CNBC that the company is focused on more efficient growth. Outside the technology sector, Goldman Sachs highlighted Walmart and Walgreens Boots Alliance as potential winners within the consumer staples sector. AI could boost baseline earnings 44% overtime at Walmart, which last week lifted its full-year outlook due to heightened grocery and online spending. Illumina and Occidental Petroleum were also included in the basket. — CNBC's Michael Bloom contributed reporting.