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Q3 earnings will test which firms can turn AI adoption into measurable profit gains.
Healthcare, finance, and retail could see the biggest AI-driven efficiency gains.
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So far, talk of AI-driven profit booms has been cheap for companies.
Much like hyperscalers were once able to excite investors with ever-increasing capex levels without concrete evidence of monetization, firms have been able to dine out on the promise of future profit growth thanks to AI, while providing few specifics.
But just as investors eventually began to demand answers from firms like Microsoft and Meta (which have duly delivered), they’ll start to do the same for the supposed beneficiaries of AI technology.
“AI’s next wave will likely reward companies that use the technology to improve decisions, lower costs and strengthen margins — not just those building AI infrastructure,” Ellen Zentner, Morgan Stanley Wealth Management’s chief economist, wrote in September.
That day may be here. Earnings season is once again upon us (it always seems to come quicker than you’d think, doesn’t it?), and while AI hyperscalers and hardware stocks will remain a large part of the conversation, we’re also likely to see the focus shift toward which non-AI firms are successfully adopting the technology and boosting their profit margins.
Investors want to see which companies are using the technology to get ahead, and they’ll want to see concrete numbers.
According to Goldman Sachs, just 2% of S&P 500 companies have so far “quantified” the earnings impact of AI efficiency gains, and 11% have cited a specific use case for the technology. That’s despite 50% of companies talking in their Q2 earnings calls about AI eventually juicing their margins.
Recent Morgan Stanley research showed that stocks with both upward earnings and free cash flow revisions in Q2 saw their share prices rise, on average, after reporting, while those missing at least one of those fell.
It sounds obvious, but investors aren’t always as discerning about the earnings outlook as they seem to be right now, as factors like rising interest rates increase scrutiny on cash flows.
So, let’s get into where investors might see some of these AI efficiency gains .
Morgan Stanley’s Zentner highlighted how these industries could benefit:
Healthcare: Can help improve documentation and administrative tasks, as well as develop new treatments
Financials: Can assist banks, asset managers, and insurers with workflows and decision-making
Retail: Can get a leg up on merchandising, customer service, marketing, and logistics, particularly the larger retailers
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