Savita Subramanian, head of U.S. equity and quantitative strategy, said Wednesday that AI advancements will streamline worker productivity and drive future growth for stocks outside of the “Magnificent Seven” that markets have yet to fully capture.
″[I] think that this is really the bull case that I alluded to, the idea that productivity and efficiency are likely to drive margin gains, margin stability, companies are now focused on improving efficiency and AI is part of this,” Subramanian said.
“I think this is actually a very underappreciated bull case,” she added. “The idea that AI is not just about tech companies reaping money from everybody spending on the chips and the software, but it’s also companies getting leaner and more efficient and potentially having better margins going forward.”
The “Magnificent Seven” stocks in the S&P 500 have been large growth drivers for Wall Street for most of 2023. Group members Nvidia and iPhone maker Apple have surged more than 200% and more than 40%, respectively.
Subramanian also highlighted resilient consumer spending as another bull case for Wall Street, noting the U.S. in particular is better suited in this sector compared to other regions due to fixed mortgage rates locked in before the Federal Reserve ended its quantitative easing cycle.
“The average consumer’s real wage growth just inflected positive, so we are all making more than we’re spending at the grocery store, at least as of now. As long as those factors don’t change, we think that the consumer can hang in there,” she said.
Subramanian also raised her full-year target for the S&P 500 to 4,600 in September, which is tied for the second-highest of those compiled in CNBC’s Market Strategist Survey.
“We’ve had a big move in rates, but companies have so far been able to withstand it. And our view is that there is likely to be a reallocation out of bonds back into equities as folks realize that rates and inflation could remain higher and stickier than what we were all expecting at the beginning of the year,” she said. “So, you know, in our view, companies are doing everything right today.”