The stock market is on the brink of a major upswing as a virtuous investment cycle driven by artificial intelligence is set to propel S&P 500 profits to record highs, according to Bank of America. In a recent note, strategist Savita Subramanian highlighted the impact of corporate investments in AI technologies, which are expected to lead to a surge in spending across various sectors.
Subramanian revised her 2024 S&P 500 earnings per share estimate to $250, up from $235, marking a significant increase and surpassing the average consensus estimate. This forecast suggests a 12% year-over-year growth in corporate profits. Looking ahead to 2025, Subramanian projected earnings per share to reach $275, representing a 10% increase from her 2024 estimate.
The recent rally in the stock market has been fueled by strong fourth-quarter earnings results, and Subramanian believes that the adoption of AI technologies will drive even greater profits in the future. She pointed out that investments in AI will benefit sectors such as semiconductors, networking, utilities, and commodities as electricity demand rises due to the physical build-out of data centers.
Major tech companies like Microsoft, Amazon, Alphabet, and Meta are leading the way in AI investments, with a combined capital expenditure of $180 billion expected this year, representing a 27% year-over-year growth. Subramanian noted that these companies are entering a reinvestment cycle, with their increased spending driving earnings growth.
The combination of a strong economy, productivity gains from AI, and a surge in domestic investments is expected to boost corporate profits and drive the stock market to new heights. Subramanian recently raised her year-end S&P 500 price target to 5,400, indicating a potential 5% upside from current levels.
Overall, the outlook for the stock market appears promising as the virtuous investment cycle sparked by AI is poised to drive S&P 500 profits to unprecedented levels, setting the stage for a period of significant growth and prosperity.
