Of interest to valuation experts are two works from McKinsey that examine artificial intelligence (AI). One is a report that we mentioned in an earlier issue that ended up as its No. 1 best-read report, “The Economic Potential of Generative AI: The Next Productivity Frontier,” which is available if you click here. A key takeaway of this report is that four areas of a company—customer operations, marketing and sales, software engineering, and research and development—could account for about 75% of the value that using generative AI could deliver.

The other is McKinsey’s survey, “The State of AI in 2023: Generative AI’s Breakout Year,” which ended up at No. 1 on its best-read survey list. The survey reveals the significant effects respondents expect on their industries and workforces. Some survey respondents reported that at least 20% of their EBIT in 2022 was attributable to AI use. Also, more than two-thirds of respondents say they will increase their investment in AI over the next three years. You can access the survey if you click here.

AI is a major trend that can impact a firm’s cash flow, growth, and risk, so analysts must consider it when valuing a company.