AI could save firms nearly $1 trillion a year, study finds
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Fully adopting artificial intelligence could save corporate America $920 billion annually, new Morgan Stanley data finds, cost savings that could come from employing a lot fewer people.
Why it matters: As investors worry about soaring valuations, the data backs up the bulls: AI could boost productivity and supercharge earnings growth, leading to profits that could justify the current multiples.
By the numbers: The $920 billion in annual savings from AI adoption, net of estimated implementation costs, is only the beginning, according to the data.
- That represents over 40% of the annual compensation expenses within the S&P 500. Long term, this could result in $13 trillion to $16 trillion in market value creation for companies in the index.
Between the lines: That 40% number refers to cost savings associated with paying people, which could signal job losses to come.
- "In some cases, adopting AI will result in headcount reductions," Stephen Byrd, the global head of thematic research and sustainability research at Morgan Stanley, tells Axios. "In other cases, employees will be freed up to focus on higher value-added work that can generate incremental revenue and/or reduced company expenses."
- The mix between headcount cuts and more free time for workers will vary based on industry and job type. This could manifest via corporates not replacing workers lost to attrition, rather than big sweeps of layoffs.
Zoom out: The new data comes as investors wonder whether AI spending will lead to cost savings, with four of the top tech firms ready to spend $364 billion on AI for 2025 alone. But that looks measly compared to $920 billion in estimated annual savings.
Zoom in: The cost savings are not linear, and Morgan Stanley estimates different upsides for various sectors in the market.
- AI could generate savings worth more than 100% of expected 2026 pretax profits in consumer staples distribution or retail, real estate management, and development and transportation.
- Technology hardware and equipment and semiconductors are not among the sectors expected to save as much.
Be smart: If AI delivers nearly $1 trillion in annual savings for companies, profits could see a major lift, giving the lofty valuations of today some real earnings support.
