Goldman Sachs has raised concerns about the sustainability of artificial intelligence (AI) stock-market dominance, pointing out that tech giants like Amazon, Meta, Microsoft, and Alphabet have invested heavily in AI over the past year. The firm highlights that a significant portion of the $357 billion spent on capital expenditures and research and development by these companies has been allocated to AI.
The key signal that Goldman Sachs is watching closely is whether these companies can translate their AI spending into tangible revenue and earnings. The analysts at the firm emphasize that while AI stocks have been performing well recently, there is growing uncertainty about the return on these investments among investors.
According to Goldman Sachs, downward revenue revisions could be an indicator that the AI spending is not yielding the expected results. If companies fail to demonstrate that their investments in AI are generating revenue and earnings, it could lead to a de-rating of their valuations and potential stock losses.
Although only 5% of companies currently use AI to produce goods and services, the gap between capital spending and actual sales and profit is not as pronounced as during previous tech bubbles. The analysts at Goldman Sachs believe that hyperscalers will eventually need to show concrete results to justify their valuations in the long run.
Investors remain bullish on the potential gains from AI adoption but are uncertain about the timeline for these returns. The ongoing debate around the effectiveness of AI investments highlights the need for tech giants to deliver on their promises and demonstrate the financial impact of their AI initiatives.
