- Artificial intelligence is probably the hottest topic in the market so far this year.
- However, investors are currently not pricing in the future impact of AI in the S&P 500.
- According to Goldman Sachs, the top 24 stocks to buy for AI exposure are:
Artificial intelligence (AI) is getting everyone’s attention these days, but Goldman Sachs believes investors may still be underestimating the technology’s impact.
The technology sector has led the broader market so far in 2023, amid growing enthusiasm for AI. In fact, Goldman Sachs strategists recently noted that as of June 1, only seven large tech stocks were responsible for all of the S&P 500’s year-to-date gains.
But the growing wave of AI will not only boost the tech sector in the next few years.
Goldman Sachs expects AI to dramatically improve economic productivity and corporate earnings across markets.
Goldman Sachs argued that the stock should go higher based on how AI will affect business in the future.
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Equity strategist Ryan Hammond wrote in a note dated June 6 that if, as Goldman predicted, AI could boost business productivity by 1.5 percentage points annually over the next decade, it would mean that U.S. stocks are currently undervalued by 9%. It is written that it means that it is evaluated. This is based on a compound annual growth rate of 5.4% for S&P 500 company earnings over the next 20 years.
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And even if the AI hype is overblown in the short term, Goldman still thinks the S&P 500 should trade 5% higher. A best-case scenario for AI-driven productivity would see the index rise by 14%.
“At the S&P 500 index level, neither current levels of equity risk premiums (ERPs) nor long-term EPS growth expectations suggest that the stock market is overly optimistic about the potential benefits of AI adoption,” Hammond said. It doesn’t show,” he said. “Both metrics are broadly in line with historical averages and are less extreme than during the height of the dot-com boom.”
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References to the dot-com bubble of the early 2000s can give investors chills, especially in this context. Several market pundits, including UBS’s Art Cassin, have warned that the euphoric anticipation of AI is similar to sentiment for internet stocks 20 years ago.
“The historical precedent of the dot-com boom shows the dangers of high expectations,” Hammond wrote. “Even if most TMT [technology, media, and telecommunications] The company was still able to deliver significant revenue growth from 2000 to 2002, but failed to meet investors’ high expectations, causing its P/E ratio to shrink by more than 50% and its share price to plummet. ”
No two markets are the same, but Nvidia’s current valuation resembles that of dot-com companies like Microsoft and Intel near the height of the tech bubble, Hammond said. This means that even if the company is thriving, you should be careful when investing in it.
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But even as investors are enamored with Nvidia’s success, Goldman Sachs isn’t concerned that U.S. stocks are generally in bubble territory.
“At the index level, current equity risk premium (ERP) and long-term EPS growth expectations are broadly in line with historical averages, suggesting investor optimism about AI adoption is not at an extreme level. I do,” Hammond wrote.
According to Goldman Sachs, risks to U.S. stocks at the moment include high interest rates, recession risk, and government responses such as regulation and corporate tax hikes, as well as a heavy reliance on AI hype. including that the impact of AI on sex is more contained.
Top 24 AI stocks to buy
Investors seem to have an insatiable appetite for AI-related investments right now, and Goldman Sachs has some ideas on how investors can tap into this game-changing technology.
In addition to listing 15 companies to trade options on AI stocks, the company enables new advancements in AI-related companies or industries such as software, semiconductors, technology hardware, media, internet and IT. 20 companies with service.
Below are the 24 stocks in the Goldman Sachs AI Basket, along with their respective tickers, market caps, and expected price/earnings ratios (PERs).
