Macro Markets and Machines_The Economic and Market Transformation Driven by AI_GWM report - Flipbook - Page 11
Macro, Markets, and Machines
November 2025
Section 2.1: Dissecting the Impact of Technological Innovation on
Corporate Profits
The transformative effects of AI on productivity, economic growth, and income distribution are already reshaping
the global economy, and, naturally, these shifts have profound and increasingly significant implications for
investors. Unlike past innovations that were more narrowly confined to individual sectors, AI’s reach is economywide, potentially allowing the impact to reverberate across asset classes, industries, and geographies.
During the dotcom era of the 1990s, U.S. corporate profits as a share of GDP increased as firms substituted
computers and software for routine tasks, ramping up automation and improving efficiency (Exhibit 6). With the
exception of recessionary periods, profits as a share of GDP have generally trended higher since the turn of the
century. AI may have a similar – and possibly amplified – effect as its impact reaches into higher-skill work.
Exhibit 6 – Corporate Profits Rose in the Dotcom Era and Have Generally Trended Higher over the Last
Decade
9.0%
7.5%
6.0%
4.5%
3.0%
1.5%
0.0%
1973
1983
1993
2003
2013
2023
Profits after tax with IVA and CCAdj (nonfinancial corps) - % of GDP
Source: FRED; Scotia Wealth Management.
Indeed, history shows that transformative technologies tend to coincide with periods of faster productivity
growth and rising profitability. Between 1950 and 1972, U.S. nonfarm productivity rose at a compound annual
growth rate (CAGR) of 2.7%, supported by industrial development, infrastructure expansion, and large-scale
capital investment. Corporate profit margins during the post-war boom averaged 9.2%, underscoring the
strength of manufacturing and productivity-driven growth.
The following period spanning 1973-1995 marked a sharp slowdown. Productivity growth decelerated to a
1.9% CAGR and margins compressed to 6.9% as the oil price shock and diminishing returns from earlier
technological advances weighed on output.
A return to form came in the 1995-2004 period when productivity surged to a 3.3% CAGR amid the rise of
personal computing, the Internet, and enterprise software, which transformed the way companies operated.
Businesses automated workflows and expanded output while lowering costs, lifting corporate profit margins to
7.8% and marking the start of the modern era of technology.
Productivity momentum faded again in the 2005-2019 period, slowing to just a 1.3% CAGR as the diffusion of
information technology plateaued. Efficiency gains increasingly came from globalization rather than innovation
as companies turned to offshoring to lower costs and sustain profits. This was effective, as corporate profit
margins climbed to 10.5% (Exhibit 7).
Scotia Wealth Management
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