Bank of America survey predicts massive AI lift to corporate profits

Amid profound skepticism about generative artificial intelligence (Gen AI) in the enterprise — consulting firm Deloitte says projects are struggling to get into production, and research firm Gartner predicts many projects will be abandoned — investment bank Bank of America (BofA) has reported results of a survey of Wall Street stock analysts recently that imply there will be a massive boost to corporate profits because of Gen AI.

“BofA Global Research analysts found that enterprise AI implementations are moving from pilots to production, which could boost S&P operating margins by 200 basis points (bps) over the next five years, equivalent to approximately $55 billion in cost savings, annually,” write lead author Vanessa Cook and team in the report, “AI: From evolution to revolution?”.

Also: There are many reasons why companies struggle to exploit generative AI, says Deloitte survey

The survey, conducted in August, posed questions to 130 of Bank of America’s equity research analysts, the individuals who compile financial projections for publicly traded companies. The analysts cover over 3,400 companies in 25 industry sectors from software to insurance to food and beverage. 

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Software is the industry that may see the greatest product margin expansion (5.2%) due to enterprise Gen AI, followed by semiconductors, and the energy sector. The least likely sectors to benefit are healthcare equipment and services, and telecommunications, which may see a deterioration of profit margins, according to the bank. 

The report contains few specifics about how the cost savings will occur. Some examples are put forward for entities that have already seen cost savings or are likely to in the near term. 

Also: A third of all generative AI projects will be abandoned, says Gartner

“For example, utilities companies may generate a 75% reduction in pole inspection costs by mounting AI-powered autonomous smart cameras on fleet vehicles,” the report relates. “And insurance companies may expedite the process of underwriting a property by replacing manual internet searches with AI-powered aerial imagery and web scraping to determine the condition of a roof or if nearby hazards exist.”

In another example, an e-commerce service provider used “an AI-powered customer service bot to reduce the need for 700 (human) customer-service agents,” which might increase its profits by $40 million this year. “The company also leverages Gen AI apps to bring marketing partially in-house, which reduced external agency spend by 25% in 1Q24,” says the report.

Also: 3 ways to build strong data foundations for AI implementation

The authors caution that a lot of infrastructure has to be built out, which will take time, before profits materialize in every industry. 

“Gen AI may catalyze an evolution in corporate efficiency, but app development and enterprise adoption will take time,” the authors write. “Infrastructure investment and resulting model advances are prerequisites for transformative and revenue-generating Gen AI apps, which remain largely in version 1.0.”

Also: Enterprises double their generative AI deployment efforts, Bloomberg survey says

Because of the big up-front investment that is required initially, “investors should not discount Gen AI’s cost savings and revenue-generating potential before usage even begins,” the authors advise. 

While the survey is encouraging, until there’s clearer evidence for widespread cost savings, and productivity enhancements, the skepticism about Gen AI is bound to continue.