Earnings Report Preview | AI Boosts Efficiency, Could Bank of America Enter a New Growth Cycle?

According to the Zhitong Finance APP, Bank of America (BAC.US) will announce its fourth-quarter earnings before the U.S. stock market opens on January 16. The market expects Bank of America's Q4 net interest income to be $14.18 billion, with revenue expected to be $24.95 billion, a year-on-year increase of approximately 14%.

At the same time, net profit is expected to reach $6.28 billion, nearly doubling from the previous year, with earnings per share of $0.77, a year-on-year increase of 119.29%. It is understood that last year, Bank of America and other large banks incurred billions of dollars in expenses related to a special assessment by the Federal Deposit Insurance Corporation (FDIC).

Previously, with the growth of wealth management and investment banking sectors, Bank of America's performance in the first three quarters of this year exceeded expectations.

In the last quarter, due to strong capital market performance, underwriting income grew by 24.5%, and sales and trading income increased by 11.7%. Bank of America's third-quarter performance was better than expected at $0.81. Deposit balances increased by 2.4% year-on-year to $19 trillion, highlighting the continued growth of core banking operations.

AI Enhancing Efficiency

In addition to conventional financial metrics, the current trend of artificial intelligence may also be a theme worth noting in the banking industry.

Recently, a report from Bloomberg Intelligence indicated that as artificial intelligence encroaches on jobs currently performed by humans, global banks could cut up to 200,000 jobs in the next three to five years.

However, it is noteworthy that the findings further suggest that artificial intelligence has brought profound changes to the industry, thereby enhancing profitability. BI's data shows that by 2027, as artificial intelligence drives productivity improvements, banks' pre-tax profits could be 12% to 17% higher than before, with total profits increasing by $180 billion. Eighty percent of respondents expect that generative artificial intelligence will increase productivity and revenue by at least 5% in the next three to five years.

Despite the controversy surrounding artificial intelligence in the workplace due to the risk of job automation, the fact is that artificial intelligence is essential for almost every business that wants to maintain efficiency. According to research in 2023, one-third of businesses are using artificial intelligence tools.

Bank of America's management may also be aware of this. The management is very committed to using artificial intelligence to improve their business. This was a significant topic of discussion at an industry conference in mid-December last year.

Bank of America Chairman and CEO Brian Moynihan stated at an industry conference on December 11, "The whole concept of automation is still very important to us."

Moynihan also mentioned in the same industry conference call that the usage of Bank of America's virtual assistant Erica continues to grow at an annual rate of 5% to 6%, with the number of users increasing by 5% to 6% each year, and usage growing at a double-digit rate of 15% to 20%.

According to FDIC data, the net profit of the commercial banks identified by the company rose to $71.5 billion in the second quarter of 2024. Meanwhile, Bank of America's net profit for the same quarter was $6.9 billion, meaning the company contributed approximately 9.65% of the industry's profits Analysts predict that due to cost-cutting measures from artificial intelligence, Bank of America's profits will increase by $17.37 billion annually by 2027, significantly boosting their current profit margin of approximately $22 billion.

Wall Street is also generally optimistic about Bank of America's prospects. As of Monday, among the 12 analysts tracked by Visible Alpha, 11 rated it as "Buy" or equivalent, with only one giving a "Hold" rating. The average target price is around $52, which implies a nearly 16% premium over Monday's closing price.

In the past 12 months, Bank of America's stock price has risen by over 37%, reaching $45.06