Dear Reader,
Last month I wrote an article and did a video here about how the AI trade shifts in 2027 from enablers to adopters.
So far in the AI story, the enablers have made all the great returns.
Enablers are the companies that gave us the ability to use AI.
Semiconductor stocks like Nvidia, Micron, Broadcom, and AMD.
Power stocks.
The companies that built the infrastructure, like OpenAI.
They enable other companies to adopt and use AI.
A lot of the money has been made there, and they’ve had a great run.
Now it’s the adopters, the companies actually taking these tools and putting them to work.
Morgan Stanley Just Backed It Up
Morgan Stanley put out a new research note this week that supports this argument.
They analyzed 18,000 corporate transcripts.
44% of S&P 500 companies can now report at least one benefit they can actually measure from AI.
Everyone keeps talking about productivity.
What makes me happiest is that they’re seeing direct financial impacts.
26% of these companies have seen real results, like lower costs and higher revenue.
In business, the sole purpose of a company is to earn the highest return on its investment.
You do that by lowering costs or raising revenue.
AI is starting to do both.
Much of the world has been asking where the beef is on AI.
What’s the ROI?
How does this help people make more money or do what they do for less?
Now we’re starting to see it filter through the income statement.
It shrinks some costs and expands some revenue, which lifts margins and net income relative to investment.
That’s a very big deal.
The List
Morgan Stanley also came up with a list of the companies using AI best.
Here are some of them.
Bank of America, UnitedHealth Group, Procter & Gamble, Recursion Pharmaceuticals, State Street, Citigroup, Grindr, JPMorgan Chase, American Express, Visa, Devon Energy, RTX, CVS, Lowe’s, Regions Financial, Citizens Financial, Cigna Group, Fifth Third Bancorp, GE Aerospace, Chipotle, Bank of New York Mellon, and Blackstone.
Why Finance Leads
You see a heavy concentration of financial companies.
That’s no surprise.
Technology spreads first on the West Coast, in Silicon Valley.
But tools that deliver high returns on investment spread to Wall Street first.
Wall Street moves fast, and it does this for itself first.
These firms have a lot of banking clients.
So they run it through their own systems, show how they use it, and then go to those clients and say here’s what we’re finding.
Think about American Express.
It checks someone’s credit and tries to get people information faster.
I have an American Express card, and it targets special offers, like extra bonus points if you do this or that.
AI can speed all of that up.
AI can speed up analyzing credit risk.
And it can speed up all the back office work a bank does, the paperwork and the confirmation sheets.
You can see how AI helps.
UnitedHealth
Then there’s healthcare, with UnitedHealth and Cigna.
UnitedHealth should be able to expand its margins in a significant way.
That’s one of the reasons UNH is in our model portfolio at Behind the Markets.
We recommended it after the stock got crushed.
They missed earnings, but this is basically a quasi-monopoly.
On valuation, the company was trading at a discount.
Now you can see AI boosting margins for a company like this.
Those margins are razor thin.
Everybody has strong feelings about these companies.
But they aren’t making big profit margins.
It just isn’t that kind of business.
AI should change that.
There’s also the politics.
With a Democratic Congress now, I don’t see how they don’t push to bring back some of those Obamacare tax breaks.
That puts cash in people’s pockets and makes life a little easier.
That’s another bullish sign for UnitedHealth.
The Bottom Line
I thought it was important to share this list because as investors we’ve been asking where the return on investment is.
Here at Behind the Markets, we see it.
We’ve saved money, and we’ve made more than we’ve saved.
Our return on investment has gone higher.
But you don’t want it to show up only in small companies that can move fast.
You want to see the S&P 500 adopt this en masse.
The only way that happens is with results like these.
So here’s what I think.
2027 is going to be the year adopters’ margins increase.
That’s a strong support for the stock market.
And my #1 winner of this new shift in AI is this company right here.
This company stands to benefit no matter who is in office.
Have a great day.
I’ll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine