AI is stock market magic. How to spread it around.

This is due to artificial intelligence noise. I don’t want to overstate the importance of AI. it is the work of venture capitalist Marc Andreessen. It is possibly the most important thing that civilization has created, he writes, “certainly on a par with electricity” and “probably beyond it.” I plan to check it out on ChatGPT as soon as my laptop charges.

Nvidia (NYSE: NVDA) is up 163% this year on sales of its AI chips. Microsoft ( MSFT ) gained 36% after adding ChatGPT to its Bing search engine. Meta Platforms ( META ), which surged 120%, said Thursday that the generative artificial intelligence that can inject text, photos and videos into Facebook and Instagram. “Democratizing access to this has a number of values,” founder Mark Zuckerberg reportedly told employees.

A bunch of value is exactly what is needed to support share prices. And while there’s no way to calculate exactly how much AI will add to corporate profits, that’s never stopped Goldman Sachs from doing so to the tune of a tenth of a percentage point two decades later. Widespread adoption of AI could boost worker productivity and boost average 20-year earnings growth to 5.4%, half a point above current forecasts, the bank said. That would add 9% to the current fair value of the S&P 500.

Don’t hold Goldman to it. It is said that the actual increase in the theoretical fair value of the market, due to the benefits of distant, unknown AI, could be between 5% and 14%.

The good news is that the stock market boom isn’t an artificial intelligence bubble, Goldman says. Of course, Nvidia at 50 times earnings calls back Microsoft and Intel ( INTC ) during the dot-com bubbles of the 1990s, at 60 and 40 times earnings, respectively. But Cisco Systems ( CSCO ) hit 125 times that time, Goldman notes. More comfortingly, earnings expectations haven’t risen today, with AI’s biggest beneficiaries only pushing the market’s price/earnings ratio up slightly, from 17 to 18.

AI tends to favor large-scale players, making it a challenge to extend a stock market rally. But if the dot-com bubble taught us anything, it’s that in the early days, talking about the Internet was just as important to stock gains as making money from it. A Purdue University study looked at 95 companies that added .com, .net, or Internet to their names at the time and found an average increase of 74% in the 10 days following the announcement.

UBS

reports that the software, media, and chip industries lead the way in company filings for AI mentions, with financial and medical services holding their own. But some industries, such as food and paper products, have had precious little to say. This disparity needs attention, and I’d like to recognize some non-tech names that are bravely leading the charge.

I haven’t tried the Chunky Ghost Pepper Chicken Noodle, but Campbell Soup (CPB) says it got the idea from AI, and that’s good enough for me. “The Insights engine provides insights into how consumers want to get spicy,” an executive told Food Business News earlier this year. They want to bring them in brutally, as if the algorithm has decided. the new soup is 13 times hotter than the current Spicy Chicken Noodle. The stock, which trades for 15 times earnings, hasn’t yet responded, but Campbell says his insight engine also sparked thoughts of red-hot fish crackers.

Kraft Heinz ( KHC ) says it’s using AI in a ketchup ad campaign. French fry supplier Lamb Weston (LW) has put it to work on potato yields. Just four years ago, McCormick ( MKC ) teamed up with IBM ( IBM ) to turn spice data into AI recipe blends, including Bourbon Pork Tenderloin. Could it be a coincidence that BofA Securities upgraded the stock twice in the past week from underperform to buy? It cites moderate meat inflation and easy comparisons to last year’s barbecue season, but I smell machine learning.

Paper companies in particular should get the memo on AI announcements. Never mind that Kimberly-Clark (KMB) recently boasted that its logistics algorithm reduced order picking and delivered 3% more stocked trucks; in this market, it takes the magic of customer-facing data to move stock prices, not supply chain products.

But beware of promises that sound too good to be true. The April 1 announcement that Procter & Gamble ( PG ) would launch CharminGPT with Wi-Fi, usage prompts and automatic reorders was a hoax. Here’s hoping toilet paper technologists really sit up and think about how data mining and deep learning can unlock bathroom benefits and big profits.

Investors put off by Big Tech valuations should look to mid-cap stocks, which are more than a quarter cheaper than the rest of the market, Christine Bitterly, head of North American investments at Citi Global Wealth, said last week. JP Morgan largely agrees with that sentiment. The summer has historically been a period of bad performance of the average capital, but in the long term they are evaluated by the “dwarf” profitability of large companies, writes the latter.

It is one of the ways to buy

SPDR S&P Midcap 400

exchange-traded fund (MDY), the cost of which is 0.23% per annum. The underlying index tracks profitability and trades at 14 times this year’s forecast earnings. For individual stocks, JPM wants you to know that its model mid-cap portfolio, while down this year, has outperformed the Russell 2000 by 15 points since last summer. Picks include Magnolia Oil & Gas ( MGY ), a cash-strapped driller, and Boot Barn ( BOOT ), a western clothing retailer. This past week JPM added

Hibbett ( HIBB ), the sporting goods chain, has traded at a 46% discount this year, trading at about five times earnings.

Write Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.