- Goldman Sachs warns of a massive slowdown in AI investment Big Tech allows you to reduce your S&P 500 valuation by up to 20%, but the current risk is below the level of previous bubbles. The fallout depends on the trends in capital expenditures of hyperscalars. Analysts are hoping to slow down in the second half of 2025 or 2026, but guidance continues to rise.
Another day, another record high for the S&P 500, and another investment bank has a research note asking if AI stocks are in the bubble. Today, it's the Goldman Sachs turn, with Ryan Hammond and his team in Nvidia et al. I'm heading towards a crash.
Their conclusion: We are not there yet.
The S&P was a new record, up 0.83% yesterday at 6,502.08.
Although it has been highly rated, Goldman says it is actually lower than the 2000 dot-com boom. According to the bank, there is one approaching danger: the “inevitable slowdown” in capital expenditures by “hyperschool” AI companies (Amazon, Alphabet, Amazon, Meta, Microsoft and Oracle).
Under what Goldman calls “an extreme scenario where hyperscalers bring CAPEX back to the 2022 level,” AI companies' “lost” revenue represents a 30% reduction in their $1 trillion estimate of total revenue at S&P 500 companies next year. Next, “The return of long-term growth estimates to early 2023 levels means a 15%-20% downside of the S&P 500's current rating.”
AI stocks have risen 32% in 2024 and 17% to date, saying, “Investors are increasingly asking whether current US stock prices reflect the expectations of overly optimistic investors.” But tech stocks are currently below historic bubble levels, Hammond's team writes. “The five largest shares in the Index (NVDA, MSFT, AAPL, GOOGL, AMZN) trade at a P/E multiple of 28X, compared to a 40x peak in 2021 and a 50x peak in the high-tech bubble. [of 2000]. ”
The factor that keeps the valuation reasonably is the vast amount of actual money that companies serving HyperSchoola incorporate as revenue. Goldman estimates that Hyperscaler Capex has totaled $368 billion so far this year.
The question is when will AI spending slow? “Analysts currently expect a sharp slowdown in the fourth quarter of 2025 and 2026,” Goldman says. But hopefully the date slips: Hyperscalar companies continue to revise script guidance upwards.
The memo also suggests that not only slows down (after all, spending needs to plateau at some point), but investors want to see more meaningful outcomes over time. Regarding so-called phase three companies, such as those that benefit from the ripple effect of technology, analysts wrote: “AI trade will ultimately spread to several phase three companies, but investors will need evidence of a tangible short-term impact on revenues… Our equity analysts acknowledge that there is a limited value creation in the application of corporate software up to now.”
This morning we have a snapshot of markets around the world.
- S&P 500 Futures It rose 0.2% this morning. The index rose 0.83% to another record high of 6,502.08 in the final trading session.
- Stoxx Europe 600 Early trading saw an increase of 0.33%.
- UK FTSE100 Early trading saw an increase of 0.36%.
- Nikkei 225 in Japan An increase of 1.03%.
- China CSI 300 An increase of 2.18%.
- Korean Cosplay An increase of 0.13%.
- Indian Nifty 50 It rose 0.19% before the end of the session.
- Bitcoin It rose to $112.7k.
