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James Faris
- Investors still have an insatiable appetite for AI, as Nvidia is now the world's most valuable firm.
- However, markets haven't yet rewarded companies that have downstream AI exposure.
- Goldman Sachs shared 37 stocks outside of the tech sector that can be AI winners.
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Artificial intelligence has been the dominant theme in markets for the last 18 months, as evidenced by the jaw-dropping rallies of Nvidia and other stocks tied to the semiconductor giant.
Nvidia has become the most valuable company on Earth after what's arguably the best run ever by any stock. After accounting for its recent 10-for-1 split, the Santa Clara-based chipmaker traded for $14.61 at the end of 2022. Its shares have since risen ninefold to $135, bringing its market value to over $3.3 trillion, which is more than Amazon and Meta Platforms combined.
Everyone is jealous of Nvidia's success, from investors piling into the stock to firms scrambling to explain why they will be a winner during the once-in-a-generation AI revolution. To that point, executives are referencing AI on earnings calls at record rates, according to Goldman Sachs.
The AI boom still isn't broad
While many companies touting their AI plans are just spouting the market's favorite buzzword, a new report from Goldman Sachs confirms that many future AI winners haven't taken off yet.
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There will be four key phases of the AI boom, wrote David Kostin, the chief US equity strategist at Goldman Sachs, in a mid-June note.
Fittingly, the first phase is solely about Nvidia, which makes the chips that help data centers process AI-related tasks. The stock is on such a heater that its six-month return is already close to 30 percentage points higher than when Goldman published this note.
The second phase is focused on firms building AI infrastructure that are in the semiconductor, data center, networking, cloud, and security industries, as well as utilities. These companies lay the groundwork for AI by designing integrated circuits, manufacturing chips and memory units, operating data centers that power AI models, storing data, or providing electricity.
Although AI infrastructure stocks broadly haven't caught fire this year, their returns crush those in the third phase, which are companies that can put AI in their products to juice sales. In fact, these would-be AI winners had lost ground in the last six months as of mid-June, Kostin noted.
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Stocks in the fourth phase — which can potentially enjoy productivity gains after adopting AI — also haven't achieved liftoff.
The lackluster relative returns of stocks that are downstream in the AI development cycle show that investors aren't yet focused on less-obvious AI winners. It's unclear when those companies will rally and expand their earnings multiples, but Goldman believes this will happen eventually.
37 under-the-radar AI winners
Goldman Sachs shared a list of 50 stocks across sectors that will grow their earnings by using AI to increase productivity while reducing labor costs. All but 13 of those firms are outside of the technology sector, which is widely seen by investors as the most obvious AI beneficiary.
Below are the 37 non-technology stocks that can be among the biggest long-term winners of the AI revolution, according to Goldman Sachs. Along with each is its ticker, market capitalization, sector, forward price-to-earnings (P/E) ratio, labor cost as a percentage of sales, and the potential change to its baseline earnings because of AI.
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1. Pinterest
Ticker: PINS
Market cap: $30.2B
Sector: Communication Services
Forward P/E ratio: 26x
Labor cost as a percentage of sales: 34%
Potential change to baseline earnings from AI: 162%
Source: Goldman Sachs
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2. New York Times Company
Ticker: NYT
Market cap: $8.2B
Sector: Communication Services
Forward P/E ratio: 28x
Labor cost as a percentage of sales: 43%
Potential change to baseline earnings from AI: 67%
Source: Goldman Sachs
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3. News Corp.
Ticker: NWSA
Market cap: $15.5B
Sector: Communication Services
Forward P/E ratio: 33x
Labor cost as a percentage of sales: 19%
Potential change to baseline earnings from AI: 63%
Source: Goldman Sachs
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4. ZoomInfo Technologies
Ticker: ZI
Market cap: $4.4B
Sector: Communication Services
Forward P/E ratio: 11x
Labor cost as a percentage of sales: 46%
Potential change to baseline earnings from AI: 58%
Source: Goldman Sachs
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5. H&R Block
Ticker: HRB
Market cap: $7.4B
Sector: Consumer Discretionary
Forward P/E ratio: 11x
Labor cost as a percentage of sales: 52%
Potential change to baseline earnings from AI: 57%
Source: Goldman Sachs
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6. Kohl’s
Ticker: KSS
Market cap: $2.4B
Sector: Consumer Discretionary
Forward P/E ratio: 12x
Labor cost as a percentage of sales: 7%
Potential change to baseline earnings from AI: 49%
Source: Goldman Sachs
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7. Coupang
Ticker: CPNG
Market cap: $36.5B
Sector: Consumer Discretionary
Forward P/E ratio: 65x
Labor cost as a percentage of sales: 9%
Potential change to baseline earnings from AI: 49%
Source: Goldman Sachs
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8. CarMax
Ticker: KMX
Market cap: $11.3B
Sector: Consumer Discretionary
Forward P/E ratio: 22x
Labor cost as a percentage of sales: 5%
Potential change to baseline earnings from AI: 42%
Source: Goldman Sachs
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9. Amazon
Ticker: AMZN
Market cap: $1,900B
Sector: Consumer Discretionary
Forward P/E ratio: 35x
Labor cost as a percentage of sales: 10%
Potential change to baseline earnings from AI: 39%
Source: Goldman Sachs
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10. Lear
Ticker: LEA
Market cap: $6.5B
Sector: Consumer Discretionary
Forward P/E ratio: 8x
Labor cost as a percentage of sales: 7%
Potential change to baseline earnings from AI: 30%
Source: Goldman Sachs
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11. Walmart
Ticker: WMT
Market cap: $543.7B
Sector: Consumer Staples
Forward P/E ratio: 26x
Labor cost as a percentage of sales: 9%
Potential change to baseline earnings from AI: 44%
Source: Goldman Sachs
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12. Walgreens Boots Alliance
Ticker: WBA
Market cap: $13.9B
Sector: Consumer Staples
Forward P/E ratio: 5x
Labor cost as a percentage of sales: 6%
Potential change to baseline earnings from AI: 38%
Source: Goldman Sachs
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13. Costco Wholesale
Ticker: COST
Market cap: $386B
Sector: Consumer Staples
Forward P/E ratio: 48x
Labor cost as a percentage of sales: 6%
Potential change to baseline earnings from AI: 31%
Source: Goldman Sachs
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14. Occidental Petroleum
Ticker: OXY
Market cap: $54.3B
Sector: Energy
Forward P/E ratio: 15x
Labor cost as a percentage of sales: 6%
Potential change to baseline earnings from AI: 9%
Source: Goldman Sachs
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15. Williams Companies
Ticker: WMB
Market cap: $51B
Sector: Energy
Forward P/E ratio: 22x
Labor cost as a percentage of sales: 6%
Potential change to baseline earnings from AI: 9%
Source: Goldman Sachs
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16. Kemper
Ticker: KMPR
Market cap: $3.8B
Sector: Financials
Forward P/E ratio: 12x
Labor cost as a percentage of sales: 11%
Potential change to baseline earnings from AI: 42%
Source: Goldman Sachs
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17. Brown & Brown
Ticker: BRO
Market cap: $26.4B
Sector: Financials
Forward P/E ratio: 24x
Labor cost as a percentage of sales: 41%
Potential change to baseline earnings from AI: 40%
Source: Goldman Sachs
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18. First American Financial
Ticker: FAF
Market cap: $5.5B
Sector: Financials
Forward P/E ratio: 13x
Labor cost as a percentage of sales: 16%
Potential change to baseline earnings from AI: 38%
Source: Goldman Sachs
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19. Willis Towers Watson
Ticker: WTW
Market cap: $17.2B
Sector: Financials
Forward P/E ratio: 15x
Labor cost as a percentage of sales: 34%
Potential change to baseline earnings from AI: 36%
Source: Goldman Sachs
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20. Marsh & McLennan Companies
Ticker: MMC
Market cap: $104.8B
Sector: Financials
Forward P/E ratio: 23x
Labor cost as a percentage of sales: 28%
Potential change to baseline earnings from AI: 30%
Source: Goldman Sachs
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21. Fidelity National Financial
Ticker: FNF
Market cap: $13.4B
Sector: Financials
Forward P/E ratio: 10x
Labor cost as a percentage of sales: 15%
Potential change to baseline earnings from AI: 30%
Source: Goldman Sachs
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22. Voya Financial
Ticker: VOYA
Market cap: $7.3B
Sector: Financials
Forward P/E ratio: 9x
Labor cost as a percentage of sales: 18%
Potential change to baseline earnings from AI: 30%
Source: Goldman Sachs
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23. Tenet Healthcare
Ticker: THC
Market cap: $13.4B
Sector: Healthcare
Forward P/E ratio: 15x
Labor cost as a percentage of sales: 31%
Potential change to baseline earnings from AI: 135%
Source: Goldman Sachs
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24. DaVita
Ticker: DVA
Market cap: $12.5B
Sector: Healthcare
Forward P/E ratio: 14x
Labor cost as a percentage of sales: 41%
Potential change to baseline earnings from AI: 105%
Source: Goldman Sachs
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25. Universal Health Services
Ticker: UHS
Market cap: $12.6B
Sector: Healthcare
Forward P/E ratio: 13x
Labor cost as a percentage of sales: 35%
Potential change to baseline earnings from AI: 91%
Source: Goldman Sachs
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26. IQVIA Holdings
Ticker: IQV
Market cap: $38.8B
Sector: Healthcare
Forward P/E ratio: 18x
Labor cost as a percentage of sales: 61%
Potential change to baseline earnings from AI: 77%
Source: Goldman Sachs
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27. R1 RCM
Ticker: RCM
Market cap: $5.3B
Sector: Healthcare
Forward P/E ratio: 51x
Labor cost as a percentage of sales: 23%
Potential change to baseline earnings from AI: 77%
Source: Goldman Sachs
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28. Encompass Health
Ticker: EHC
Market cap: $8.6B
Sector: Healthcare
Forward P/E ratio: 20x
Labor cost as a percentage of sales: 34%
Potential change to baseline earnings from AI: 68%
Source: Goldman Sachs
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29. Illumina
Ticker: ILMN
Market cap: $17.2B
Sector: Healthcare
Forward P/E ratio: 69x
Labor cost as a percentage of sales: 33%
Potential change to baseline earnings from AI: 54%
Source: Goldman Sachs
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30. Clarivate
Ticker: CLVT
Market cap: $3.6B
Sector: Industrials
Forward P/E ratio: 7x
Labor cost as a percentage of sales: 23%
Potential change to baseline earnings from AI: 232%
Source: Goldman Sachs
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31. Robert Half
Ticker: RHI
Market cap: $6.7B
Sector: Industrials
Forward P/E ratio: 19x
Labor cost as a percentage of sales: 85%
Potential change to baseline earnings from AI: 150%
Source: Goldman Sachs
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32. Ceridian HCM Holding
Ticker: DAY
Market cap: $7.9B
Sector: Industrials
Forward P/E ratio: 28x
Labor cost as a percentage of sales: 43%
Potential change to baseline earnings from AI: 125%
Source: Goldman Sachs
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33. Tetra Tech
Ticker: TTEK
Market cap: $11.1B
Sector: Industrials
Forward P/E ratio: 30x
Labor cost as a percentage of sales: 72%
Potential change to baseline earnings from AI: 122%
Source: Goldman Sachs
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34. Science Applications International
Ticker: SAIC
Market cap: $5.9B
Sector: Industrials
Forward P/E ratio: 14x
Labor cost as a percentage of sales: 33%
Potential change to baseline earnings from AI: 115%
Source: Goldman Sachs
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35. International Paper Company
Ticker: IP
Market cap: $16.1B
Sector: Materials
Forward P/E ratio: 19x
Labor cost as a percentage of sales: 16%
Potential change to baseline earnings from AI: 41%
Source: Goldman Sachs
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36. Jones Lang LaSalle
Ticker: JLL
Market cap: $10.1B
Sector: Real Estate
Forward P/E ratio: 14x
Labor cost as a percentage of sales: 30%
Potential change to baseline earnings from AI: 120%
Source: Goldman Sachs
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37. Hawaiian Electric Industries
Ticker: HE
Market cap: $1B
Sector: Utilities
Forward P/E ratio: 5x
Labor cost as a percentage of sales: 12%
Potential change to baseline earnings from AI: 26%
Source: Goldman Sachs
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