Goldman Sachs Strategist Sees S&P 500 Profits Surging 30% On AI Boost Over Next Decade

Goldman Sachs Group Inc GS is of the view that artificial intelligence could help boost S&P 500 profits in the next 10 years.

"Over the next 10 years, AI could increase productivity by 1.5% per year. And that could increase S&P 500 profits by 30% or more over the next decade," Goldman's senior strategist Ben Snider told CNBC on Thursday.

He noted that a lot of favorable factors that led to the expansion of S&P 500 earnings appear to be reversing but the real source of optimism in current times is productivity enhancements via artificial intelligence.

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"It's clear to most investors that the immediate winners are in the technology sector," Snider added. "The real question for investors is who are going to be winners down the road."

Indeed, investors appear to be bullish on technology companies as is reflected by their stock performances in 2023 so far. Meta Platforms Inc META stands among the front-runners in mega-cap tech names, having registered over 94% gains since the beginning of the year.

In the same period, both Apple Inc AAPL and Alphabet Inc GOOG GOOGL have returned over 35%. Microsoft Corp MSFT shares have gained over 31% gains on a year-to-date basis, according to Benzinga Pro.

Snider also observed that during the tech bubble, it would be very hard to envision a Facebook or Uber Technologies Inc UBER changing "the way we live our lives."

Markets And Fed: The strategist recommended that investors should spread their U.S. equity investments in cyclical and defensive sectors and highlighted the energy and the healthcare sectors for their attractive valuations.

Regarding the rate path, Snider said he expects the Federal Reserve has completed most of its monetary policy tightening. "The question is: In which ways will that continue to affect the economy moving forward?" Snider said. "One sign of concern in the recent earnings season is that S&P 500 companies are starting to pull back a bit on corporate spending."

Explaining how elevated interest rates could be a reason for the same, Snider noted that if rates are high, a company might be a little more averse to issuing debt and therefore, might pull back on spending.

"And indeed, if we look at S&P 500 buybacks, they were down 20% year-over-year in the first quarter of this year — that is one sign perhaps we haven't seen all the effects of this tightening cycle," he said.

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