How Much Is AI Worth to Stocks? Try $16 Trillion.

The Nvidia logo on a Blackwell GPU chip is displayed at the Nvidia AI Summit Japan in Tokyo in November. (Akio Kon/Bloomberg)

Expectations for eventual returns on the vast amounts of money companies are pouring into artificial intelligence are now driving most of the gains in the stock market. Research from Morgan Stanley analyst Stephen Byrd highlights why that might make sense.

The numbers could be huge. “Our analysis suggests S&P 500 companies could accrue annual net benefits totaling some $920 billion,” Byrd wrote in a Sunday report looking at how AI could affect job automation and “augmentation,” as well as at average wages.

That isn’t chump change. Nonfinancial companies in the S&P 500 have reported $2.4 trillion in operating profit over the past 12 months, according to FactSet. Total net income, including financial firms, totals some $2 trillion. An extra $920 billion could boost nonfinancial operating profit margins by six percentage points, taking them north of 22%, Barron’s calculations based on FactSet data indicate. After-tax net income could rise by almost 40%.

Of course, not all of the benefits would happen at once. And companies wouldn’t keep all of the gains; some would be passed on to consumers as a result of competition.

But however the value trickles down, Morgan Stanley estimates that could be worth $13 trillion to $16 trillion in stock market value for the S&P 500. With the market capitalization of the S&P now approaching $60 trillion, that implies an increase of 22% to 27%.

The creation of value “represents a mix of cost cutting (lower headcount, lower costs to perform a wide variety of tasks by deploying AI) and new revenue and margin generation (freeing employees to spend more time on higher value-added activities that could both increase revenue and enhance margins),” Byrd wrote.

There is a risk of job loss, but higher productivity typically leads to more employment in other areas of the economy.

The potential for lower costs and higher profits should comfort investors as they weigh Big Tech’s capital-spending plans. Outlays by Alphabet, Microsoft, Meta Platforms, and Amazon.com, much of it to develop AI capabilities, are expected to reach some $340 billion in 2025, up 50% from 2024. Spending in 2026 is expected to rise by almost 20%. Between 2024 and 2026, the quartet is expected to spend almost $1 trillion developing AI.

Morgan Stanley expects all that spending to pay off.

Write to Al Root at allen.root@dowjones.com