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- The market may have already priced in much of the AI boom, Goldman Sachs says.
- Analysts cautioned against assuming most companies could see large profit gains.
- The AI rally may crack if economic growth slows or market optimism fades.
AI mania has powered Wall Street's latest record run, creating trillions in market value. But the market may have already priced in most of the potential gains from the technology, wrote Goldman Sachs analysts in a Sunday note.
Investors, the analysts said, often over-aggregate and over-extrapolate during major innovation booms.
"Individual companies may be capable of stunning earnings growth for periods of time. But what is true for a single company may not be true on aggregate," they wrote.
When investors assign large profit gains to too many participants in the AI supply chain, "they may imply excessive aggregate revenue and profit gains."
The second risk, according to Goldman's analysts, is assuming early profits will last. Productivity gains can boost earnings at first, but competition and new investment usually eat into those returns over time.
Goldman's report came amid intense debate over whether the AI-fueled rally is in bubble territory as major US indexes breached record highs relentlessly this year before coming off sharply earlier this month.
The macro AI math
The Goldman Sachs analysts estimate AI could bring roughly $8 trillion in extra revenue to US companies, though the final haul could land anywhere between $5 trillion and $19 trillion. The analysts did not put a time period on these gains.
"Those benefits are enough to justify current and anticipated levels of investment spending," the note says.
They added that the value of AI-related companies has risen by over $19 trillion since the introduction of ChatGPT — suggesting the market may have already priced in much of AI's potential upside.
They added that while markets should price in gains from AI ahead of time if they expect them, the current valuation picture is "further advanced than the macro story."
The risk, they added, is that while high valuations can hold up when the economy is strong, investors often end up paying the price when growth slows or the cycle turns.
Still, the Goldman analysts stopped short of calling the rally a bubble.
They add that markets often price in future gains early — and even after such big rallies, valuations could keep rising.
"As long as both the economy and the AI investment boom remain on track, we think markets are more likely to continue to take a more optimistic view," they wrote.
Markets remain on edge over sky-high tech valuations as investors weigh whether massive AI investments will deliver real returns — or repeat past bubbles.
Last week, JPMorgan warned that its biggest fear for the red-hot AI trade is that it could mirror the dot-com boom and bust of the late 1990s.
"There were relatively large sums of money being spent without a clear understanding of how the adoption curve would play out. And it appears that is also the issue with the going on in AI today," wrote JPMorgan's analysts.
from Business Insider https://ift.tt/bCUOuHz
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