The Value of AI Innovations in Non-IT Firms

As the latest general-purpose-technology (GPT), AI technologies have recently started to diffuse from the general sector (IT industry) to the application sectors of AI (non-IT industries) at scale. To understand the benefits of AI innovations in application sectors, we study the value of AI innovations in non-IT firms. We find that AI innovations are more valuable compared to other innovations in non-IT industries, as AI patents exhibit a 6 percent value premium relative to other patents. These innovations are also associated with future returns, as equal- (capped-value-) weighted portfolios formed on AI patents yield a 32 (19) basis-point alpha per month after adjusting for risk and mispricing factors. Lastly, we find that the innovation spillovers and improvements in the competitive position associated with AI innovations likely explain the AI innovations value premium in non-IT industries, as AI patents are associated with more forward citations, and higher market share of sales.