Commonwealth Bank (CBA) and AI

Hi Michael,

We think this is the core reason why CBA has been an outperfomer in the space.  They are the biggest and invest the most (~$2bn annually) – and have done for a long time, while Bank of QLD (BOQ) on the other end of the spectrum has the capacity to invest less than 5% of that amount. Banking is a high volume, low margin business.  Small improvments to efficiencies help margins, and incremental margin improvements on big volumes can materially impact earnings. We think banks in the future can hold higher  multiples collectively as AI improves efficiences supporting higher earnings.

• Analysts can be very backward looking. i.e. CBA has traded on X mutliple over time, how can it justify 2X currently?

We think there is validity in anchoring valuation to the past as a guide, but we also need to try and understand what comes next. We think CBA will be at the forefront of the space, and they should trade on a premium, however, when we think about this from a global context, we find it hard to reconcile CBA’s valuation against global peers who are equally spending a lot in this space.

• In short, we don’t think analysts have factored this in, but we can also understand why. It’s hard to quantify in such a rapidly evolving space.

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Commonwealth Bank (CBA)

LAST UPDATED 06/08/2025 11:19

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Commonwealth Bank (CBA)

LAST UPDATED 06/08/2025 11:19