Artificial intelligence may boost profit margins 2% over next five years: BofA

Dive Brief:

Large companies adopting artificial intelligence may boost operating profit margins 2% during the next five years, equivalent to about $55 billion in annual cost savings, Bank of America said Thursday.
Artificial intelligence will likely spur profit gains among 23 out of 25 industry groups worldwide during the next five years, with semiconductor and software companies yielding revenue increases of 34% and 25%, respectively, Bank of America said, reporting on a survey of more than 150 of its equity analysts and economists.
“Skeptics declare that GenAI’s revenue potential doesn’t justify the current level of AI infrastructure investment,” Bank of America said. “But remember that far more significant than the internet’s initial consumer use cases were the thousands of use cases and companies that emerged because of the internet.”

Dive Insight:

The proportion of U.S. companies investing $10 million or more in artificial intelligence will nearly double from 16% this year to 30% of businesses in 2025, EY forecast based on the results of a survey.

Companies are piling money into generative artificial intelligence with the expectation of achieving revenue growth and productivity gains within the next three years, KPMG said in an August report on a survey. Seventy-eight percent of C-suite and other senior business leaders voiced confidence in yielding a solid return on investment, KPMG said.

Nearly half of early adopters of generative AI (48%) expect investment returns of 100% or more over three years, according to a report on a survey by MIT SMR Connections.

Companies use several yardsticks to gauge the pay-off from the emerging technology, MIT SMR Connections said after surveying 1,000 executives, including C-suite leaders, senior vice presidents, vice presidents and directors.

Measurements for ROI include the number of newly inspired products, operational savings, improvements in existing products and services, more finely customized marketing, sharpening sales strategies, streamlining tasks such as customer care, MIT SMR Connections said.

Indeed, companies during the next three years will probably automate most customer centers, aiming to cut the $118.6 billion in annual costs paid to 2.9 million U.S. customer service agents, Bank of America said.

“Investors frequently overestimate the magnitude of tech disruption in the near term and underestimate it over the longer term,” Bank of America said.

Even though generative AI may herald a “revolution” in technology and business, “app development and enterprise adoption will take time,” the report said.

“GenAI-driven disruption will take time, but will likely occur far more rapidly than” investors anticipate, Bank of America said.

Still, the technology will probably achieve mainstream adoption quicker than other disruptive innovations, including radio, television and email, Bank of America said.

AI adopters may slow their own progress, EY said. Many companies that adopt artificial intelligence fail to build an essential foundation, including a data structure and the cultivation of employee knowledge in emerging technologies, according to EY.