‘Unequivocally bullish’ productivity growth is coming: morning briefing (video)

That’s the takeaway from this morning’s brief that you can take away sign up to receive in your e-mail every morning along with:

So far, AI trading in the tech industry is following the same pattern we’re used to: a select few winners take it all.

After computers, phones, and search engine providers, AI chip and engine companies are simply next in line to take advantage of current innovations, and we’re all familiar with the development of the hockey stick. (Congratulations to Nvidia on the 10-to-1 split.)

These changes have led to sky-high market concentration, and the weighting of both the top five and top 10 of the S&P 500 Index continues to grow to staggering levels, driving the market to new record highs.

If you’re looking for more technical lunar shots, you certainly feel like the AI ​​cake is already baked. Hardware and chips are clearly leading the way, trailed by productivity-enhancing AI software vendors like Google (GOOG, GOOGL) and Microsoft (MSFT) — companies that provide AI products to consumers.

But as Bank of America U.S. chief equity strategist Savita Subramanian wrote in a note to clients on Monday, the eventual broadening and dispersion of generative AI technology should not be underestimated because it has the potential to boost stagnant productivity levels.

Good news for S&P 500 investors who haven’t seen Nvidia (NVDA) stock multiply by 10 this week.

Of course, there has already been some broadening, as Julie Hyman wrote in the Morning Brief last week, as utilities pursue artificial intelligence, capitalizing on the demand for near-infinite electricity and bringing a heavy, highly regulated sector on board. But that’s on the supply side.

It’s the demand side of AI that could unlock the “bull case that lies ahead,” Subramanian wrote. According to her team, S&P’s productivity growth has stalled since the introduction of cloud services in the mid-2000s, as measured by real revenues relative to employees. Globalization and leveraged buyouts have “removed the incentive for companies to do harder work related to efficiency.”

Now we’re paying attention again, as high inflation gives companies even more reason to try to be more efficient and keep costs low. Productivity growth has already started to improve since the beginning of the pandemic.

“Generation AI could be a game-changer for labor-intensive professional services and large banks, where work intensity has worsened since the global financial crisis,” Subramanian wrote.

Believing in the big names of AI means believing in AI’s actual ability to transform society, technology and the economy. There are no Nvidia customers without AI software companies. This software needs customers who think it’s worth considering.

Assuming that AI can deliver real productivity gains, we can expect a paradigm shift in productivity. And therefore profit.

“A decade of underinvestment has created obsolete, inefficient capital that is ripe for the replacement cycle,” Subramanian wrote. “Today, Corporate America has the momentum and new tools to grow effectively. This is an unequivocally optimistic approach.”

Ethan Wolff-Mann is a senior editor at Yahoo Finance and is responsible for sending newsletters. Follow him on Twitter @ewolffmann.

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