A top Goldman Sachs strategist says artificial intelligence (AI) stocks could be ready to dip lower amid potential earnings uncertainty.
In a note seen by Yahoo Finance, Ryan Hammond, Goldman’s vice president of US equity strategy, warns the percentage of capital expenditures devoted to AI investment could be nearing a top, which in turn could prime bullish investors for disappointment if future earnings are tepid.
“Our discussions with investors and recent equity performance reveal limited appetite for companies with potential AI-enabled revenues as investors grapple with whether AI is a threat or opportunity for many companies. While we expect the AI trade will eventually transition to Phase 3, investors will likely require evidence of a tangible impact on near-term earnings to embrace these stocks. Unlike Phase 2, there will likely be winners and losers within Phase 3…
Investors increasingly ask us whether current US equity prices are reflective of overly optimistic investor expectations.”
Hammond, however, does not think AI valuations appear to be a bubble.
“Implied market pricing of long-term S&P 500 earnings growth and the valuations of the largest TMT [tech, media, telecom] stocks are both modestly above their respective historical averages but remain well below the levels reached in the Tech Bubble and 2021.”
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