Bank of America this week said it will host investor meetings next week with senior executives from private companies concentrated on AI innovation, and within its capital markets coverage singled out BGC Group (NASDAQ:BGC) as its top AI stock.
The bank laid out five principal ways it expects AI to create opportunities for firms across its market structure coverage:
- New use cases for market data at exchanges;
- A migration toward cloud-delivered solutions at Nasdaq (NASDAQ:NDAQ) and Intercontinental Exchange (NYSE:ICE);
- Higher retail investor engagement at online brokers and related firms such as Cboe Global Markets (CBOE:CBOE) and Virtu Financial (NASDAQ:VIRT);
- An enhanced value proposition for electronic trading at MarketAxess (NASDAQ:MKTX) and Tradeweb (NASDAQ:TW);
- An acceleration in energy derivatives usage at ICE, CME Group (NASDAQ:CME) and BGC.
On BGC specifically, Bank of America described the company as the largest energy broker in the world and said it expects BGC to serve as a key partner for managing the incremental energy risk that will accompany the expansion of data center capacity needed to support broader AI adoption. The bank also noted that BGC holds proprietary trading-activity data that could be suitable for training AI applications.
Bank of America highlighted BGC's compensation ratio, which it reports as the highest across its market structure coverage at 63 percent. The bank argued that, given that measure, BGC stands to benefit materially from AI-driven improvements in white-collar productivity.
More broadly, the bank said generative AI will accelerate data revenue for firms that control proprietary datasets by unlocking new use cases and new clients, with particular upside in the retail channel. Within the bank's market structure coverage, it estimates that data contributes on average 14 percent of net revenue.
The bank also described how generative AI can change the mechanics of data science: natural-language interfaces can allow data analysis to be conducted without, or with reduced, programming expertise. It added that token-based licensing models may make retail-oriented use cases more affordable.
As an example of the trend, the bank noted that Nasdaq announced its first data licensing agreement with an AI-powered search company in March.
Summary
Bank of America is convening investor meetings next week focused on AI innovation and has named BGC Group as its primary AI-exposed pick within capital markets. The bank identified five channels through which AI could create commercial opportunities across exchanges, brokers, electronic trading venues and energy derivatives, and emphasized that companies with proprietary data stand to see data revenue growth as AI unlocks new applications, especially among retail users.
Key points
- Bank of America expects AI to create new market-data use cases and accelerate data revenue for firms with proprietary datasets - affecting exchanges and data vendors.
- Cloud delivery, retail engagement, electronic trading and energy derivatives are the five targeted opportunity areas cited by the bank - relevant to exchanges, brokers, trading venues and energy markets.
- BGC is identified as the top AI stock in the bank's capital markets coverage due to its leading role in energy brokerage, proprietary trading data and a high compensation ratio that could benefit from productivity gains.
Risks and uncertainties
- Timing and scale of AI-driven revenue substitution or expansion are not specified - outcomes for exchanges and data vendors are therefore uncertain.
- Realization of benefits from proprietary data depends on firms converting datasets into commercially viable AI products - applicable to BGC and exchange operators.
- Changes in licensing models, such as token-based approaches, may be required to make retail use cases economical - adoption and regulatory responses could affect brokers and data providers.