The Apollo analysis shows that no one but the biggest tech giants see benefits from AI

Despite all the hype and the many millions of dollars invested in artificial intelligence, most American companies have yet to see a financial payoff except for the largest technology companies, according to an analysis by one of the world’s largest investment firms.

In the analysis released Saturday, Apollo Global Management Inc. said the “S&P 493,” which refers to the S&P 500 excluding technology companies Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. has not yet benefited from its investments in AI.

Apollo analyst Torsten Slok said that while the Magnificent Seven have made real gains from AI, other companies’ profit margins and revenue per employee have remained flat and there is no evidence that the technology increases productivity. “Mainstream American companies are retreating and beginning to view token issuance not as a source of growth but as a cost center that eats into margins,” Slok wrote.

Slok drew his conclusions from a series of charts measuring three key metrics: revenue per worker, profit margins and productivity growth. Although AI has driven up these metrics for the seven tech giants, there is no sign of this happening for others, he said.

At tech companies, revenue per employee rose from an average of $550,000 in 2022 to nearly $800,000 this year, Apollo analysis shows. But this value has remained unchanged within the S&P 493, hovering around $550,000 since 2019:

A look at profit margins tells a similar story: Tech companies’ profit margins have been skyrocketing since the third quarter of 2023, while they’ve remained more or less flat for everyone else:

The chart tracking productivity growth is a little messier, but shows that despite what many AI optimists predicted, AI has done little to help the average company do more work with the resources at its disposal:

The study challenges the claims of those who have predicted that AI will lead the world into an “age of plenty,” where everyone can spend less time working and more time pursuing their interests outside the age. While some venture-backed startups are going against the tide and increasing their spending on AI tokens, more established companies are shying away, Slok said.

“Mainstream American companies don’t need the latest model and aren’t willing to pay for it,” he wrote. “As long as agent AI and token issuances are limited to a small portion of the economy, the macroeconomic impact of AI will be very limited.”

Some might argue that it’s simply because non-tech companies are lagging behind their innovation-focused peers, but Slok said it’s not simply a matter of pouring money into AI and reaping the rewards. “The question going forward is whether, even as models become commodified, mainstream companies in America can convert increasingly cheap information into higher sales growth and higher profit margins,” he wrote. “This might be harder than it sounds.”

The problem with AI, Slok says, is that intelligence in business is mostly related to judgment. And while AI is great at calculating, exploring, and generating things, assessing it requires much more context, and the answer often varies depending on which human or model is asked the question. AI still has significant challenges to overcome before it can be trusted, Slok explained, including its inability to understand corporate culture, accountability, ethical trade-offs, fairness and trust, all of which influence reputational risk and drive revenue and profit growth.

“The bottom line is that the AI ​​story will be decided in the S&P 493, not the Magnificent Seven, and so far there is no evidence that revenue growth or margins are improving outside of the technology sector,” Slok wrote.

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