You’re witnessing one of the greatest distortions ever created, and artificial intelligence (AI) will deliver the next phase.
The Great Distortion, as editor Nomi Prins calls it, is rooted in the Federal Reserve’s nearly $9 trillion in money printing. That, and years of interest rates being held near zero that boosted financial assets like stock and bond prices.
You’ve seen what happens when those policies are suddenly reversed. The bear market collapse in 2022, as the Fed hiked rates at the fastest pace in history, is a case in point.
But the distortion doesn’t just begin and end with central bankers. Geopolitical conflicts like Russia’s invasion of Ukraine and the creation of an all-digital dollar will ensure that the distortion continues unfolding.
And if you can track how the distortion dominoes are falling, then you can avoid traps… and capture tremendous opportunities.
Like during the next phase of the Great Distortion that will be driven by AI.
AI Will Deliver a Windfall
Recently, we’ve written about the dangers of chasing today’s hot AI stocks.
Nosebleed valuations will not end well… just like we’ve seen with countless other valuations bubbles throughout history.
But that doesn’t mean AI is a passing fad. It’s actually quite the opposite.
The excitement behind AI is the real deal. That’s because of the immediate impact and far-reaching potential for driving corporate profits higher across numerous industries.
Some of the gains will come from a boost to productivity. Like during the late 1990s, when software and internet-linked tools allowed workers to produce more in less time.
AI is expected to take over the more redundant tasks… especially those performed by white collar workers. Like customer service agents that can be replaced by chatbots.
In fact, the AI-driven productivity boost could lift S&P 500 profits by 30% or higher over the next decade, according to Goldman Sachs.
But AI will completely transform entire industries in other ways. That’s why another study pegs AI’s coming benefit at $4.4 trillion every year for the global economy.
There are certain sectors that will reap the benefits more than others. That means the impact will be lopsided – and so will the coming profit distribution.
So if you missed the first AI boom, don’t worry. There are still other select sectors that have yet to feel AI’s revolutionary impact… and the boost to corporate earnings that will come along with it.
Here are three distortion themes that AI could transform the most.
3 Ways AI Will Boost the Great Distortion
AI’s low-hanging fruit has already been picked from the technology sector. Semiconductor companies like Nvidia are profiting from the need for massive amounts of computing power to create and train AI models.
Microsoft and Google-parent Alphabet are already incorporating AI into things like spreadsheet apps and search engines.
With those early beneficiaries, we’ve already seen their stock prices jumping as much as 50% each this year as a result.
The next big winners from the impact of AI aren’t so obvious… and some may surprise you.
But they don’t surprise Nomi. It’s where AI stands to make the biggest impact on productivity and assist in revolutionary new products.
Nomi has been pounding the table on this for years. Here’s how she put it in December 2021:
AI is already being used in multiple industries, from finance and media to healthcare, agriculture, legal, retail, oil & gas, and manufacturing.
And the number of companies – from startups to industry titans – developing AI is staggering. Some of the most prominent players are Amazon, Apple, Facebook, Google (Alphabet), IBM, Intel, Microsoft, and Nvidia.
All this investment will unlock explosive economic value. Consulting firm McKinsey estimates that AI will add at least $13 trillion to the global economy by 2030.
Here are three of Nomi’s distortion themes that AI will impact the most – along with three exchange-traded funds (ETFs) to get exposure to these sectors:
New Money. Outside of the tech sector, the banking industry could feel the impact of AI the most. That’s because the industry is plagued by redundant tasks, like processing loan applications and other back-office operations.
One estimate puts the AI-driven productivity gain of the global bank industry at over $200 billion.
To play this, consider the iShares Global Financials ETF (IXG). This fund holds over 200 names in the financial sector, including giants like Berkshire Hathaway, JPMorgan Chase, and Visa.
Transformative Technology. AI is creating new ways to quickly model new drugs and other treatments for various diseases. That means the pharmaceutical sector also stands to be a big beneficiary.
AI is already cutting down on the time and cost for new drug discovery by modeling molecules for new treatments, which is a process that can traditionally take a decade and billions in research and development costs. The next new blockbuster drug could be discovered with the assistance of AI.
One way to play this is the VanEck Pharmaceutical ETF (PPH). It holds 26 pharmaceutical-related companies. Big names include Pfizer, Johnson & Johnson, and Bristol-Myers Squibb.
New Energy. AI is impacting energy in a number of ways. By predicting energy usage, AI can optimize the power grid to save costs and prevent power outages.
AI is also being used to extract more from existing energy deposits, while poring over mountains of geological data to spot promising locations for new sources.
By some estimates, AI will have a $14.5 billion impact on the energy sector in five years.
We like the iShares Global Energy ETF (IXC) as a way to play this. This fund holds 52 names in the energy sector, including ExxonMobil, Chevron, and Devon Energy.
All three of the funds above deliver global exposure to sectors ripe for AI’s disruption.
Best regards,
Clint Brewer
Analyst, Inside Wall Street with Nomi Prins