In the midst of widespread skepticism about generative artificial intelligence (Gen AI) among enterprises, consulting firm Deloitte states that corporate projects struggle to go into production, and research firm Gartner predicts that many projects will be abandoned. However, a recent survey by investment bank Bank of America (BofA) suggests that Gen AI could significantly boost corporate profits.
"Analysts at BofA Global Research found that the implementation of corporate AI is shifting from pilot to production, which could increase the operating profit margin of the S&P 500 by 200 basis points (bps) over the next five years, equivalent to about $55 billion in annual cost savings," wrote lead author Vanessa Cook and her team in the report "AI: From Evolution to Revolution?"
The survey, conducted in August, questioned 130 equity research analysts at Bank of America, who are responsible for compiling financial forecasts for public companies. The analysts cover over 3,400 companies across 25 industries, ranging from software to insurance and food and beverage.
The software industry could see the largest expansion in product profit margins (5.2%) due to corporate Gen AI, followed by the semiconductor and energy sectors. According to the bank, the least likely to benefit are the medical devices and services, and telecommunications industries, where profit margins could decline.
The report did not elaborate on how cost savings would occur. It presented examples of entities that have already seen or could see cost savings in the near future.
For instance, utility companies might reduce pole detection costs by 75% by installing AI-driven autonomous smart cameras on fleet vehicles. Insurers could speed up the property underwriting process by replacing manual web searches with AI-driven aerial images and web scraping to determine roof conditions or the presence of hazards nearby.
In another example, an e-commerce service provider used "AI-driven customer service bots, reducing the need for 700 (human) customer service agents," which could add $40 million to the company's profits this year. The report stated: "The company also leveraged Gen AI applications to internalize part of its marketing business, which reduced external agency spending by 25% in the first quarter of 2024."
The authors cautioned that significant infrastructure needs to be built before profits can be realized in each industry, which will take time.
The authors wrote: "Gen AI could catalyze the evolution of corporate efficiency, but application development and corporate adoption will take time." Infrastructure investments and subsequent model advancements are prerequisites for transformative and revenue-generating Gen AI applications, which are largely still in version 1.0.
Due to the need for substantial upfront investments, the authors advise investors not to underestimate the cost-saving and revenue-generating potential of Gen AI before they start using it.
Although the survey is encouraging, skepticism about Gen AI may persist until clearer evidence of widespread cost savings and productivity gains emerges.
Key Points:
🚀 Bank of America survey predicts that corporate AI applications will significantly increase profit margins over the next five years.
💼 The software industry could see the largest profit growth, while medical and telecommunications industries may face challenges.
🏗️ Infrastructure development and technological advancements are key to realizing the potential of Gen AI.