Morgan Stanley Study: AI Could Save S&P 500 Companies Nearly $1 Trillion Annually in Wages

AI may save firms nearly $1 trillion a year in wages, study finds

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.

The AI revolution will cut nearly $1 trillion a year out of S&P 500 budgets, Morgan Stanley says -- largely from agents and robots doing human jobs

The Wall Street bank estimates widescale deployment of so-called agentic AI software and embodied AI humanoid robotics could generate $920 billion in net annual benefits for companies in the S&P 500. The lion's share of those savings, analysts say, will come from lowering payroll expenses and reducing the need for human workers in repetitive or process-heavy roles. The projected savings equate to roughly 28% of the index's 2026 pretax earnings -- a staggering efficiency gain analysts believe will reverberate across industries. There are more caveats, as Morgan Stanley's Thematic Investing team cautions these cost savings would "likely take many years to achieve," and they see "significant risk" of some companies not achieving full adoption levels. The $920 billion figure represents 41% of the total S&P 500 compensation expense, they add, and they only have sufficient data to run analyses for approximately 90% of the S&P 500. The "economic value creation," as they put it, will come in a combination of cost cutting (e.g., lower headcount and lower costs to perform a wide variety of tasks by deploying AI) and new revenue and margin generation, as employees are freed up to spend more time on higher value-added activities that could both increase revenue and enhance margins. They see a wide variety of the balance between these two impacts, based on industry and occupation. The $920 billion in annual economic benefit could translate into a $13-$16 trillion boost in market value for the S&P 500, according to the report, depending on valuation multiples. That figure would amount to nearly a quarter of today's entire market capitalization. Not all industries will feel the effects equally. As you can see from the chart below, Consumer staples distribution and retail, real estate management, and transportation are among the most exposed sectors, with potential AI-driven productivity benefits exceeding 100% of forecast 2026 earnings. Healthcare equipment and services, autos, and professional services also face major disruption and opportunity. By contrast, industries that already run lean on labor relative to earnings -- such as semiconductors and hardware -- show comparatively lower AI value potential. Though the topline savings will come from payroll reductions, Morgan Stanley stressed the distinction between full automation and task-level augmentation. Agentic AI, which spans generative AI and software applications, tends to reassign tasks rather than eliminate jobs outright, while embodied AI in the form of humanoid robots poses more direct substitution risks in industries such as logistics and physical retail. The report also anticipates entirely new categories of jobs -- from chief AI officers to AI governance specialists -- emerging alongside the displacement trend, echoing earlier waves of technological disruption that boosted demand for programmers, IT professionals, and digital marketers. Despite the headline number, the analysts caution full adoption is likely to unfold over years, if not decades. Firms will lean first on attrition and process efficiencies rather than immediate mass layoffs, particularly in sectors where customer-facing roles drive revenue. Still, the message for investors is clear: AI is no longer a speculative theme. The cost savings potential is so large it could become one of the most powerful drivers of U.S. corporate earnings growth in the second half of this decade.