Goldman Sachs Highlights Optimism in AI Stocks

Artificial intelligence (AI) is more than just a buzzword.

Goldman Sachs Group strategists argue that AI stocks have strong fundamentals and valuations that are not excessive compared to tech bubbles seen in the past, Bloomberg reported Tuesday (Sept. 5). Today’s AI companies are already profitable and generate cash. 

The release of OpenAI’s ChatGPT has fueled demand for generative AI, which has the potential to disrupt industries such as banking, education and film, according to the report. Citigroup strategists predict that the broad impacts of AI will be seen across businesses in as little as two years, characterizing it as the stock market’s “new growth thing.”

Chipmaker NVIDIA has been a standout performer in the AI space, with its shares up 232% this year, the report said. Goldman Sachs analysts have identified a basket of companies with the greatest potential long-term boost to earnings per share from AI. They predict that the median stock in their index could see its profits grow 72% from a baseline.

Despite concerns about rising bond yields, technology stocks, including AI companies, have continued to outperform, per the report. This indicates that investors believe higher growth rates in the future will offset higher discount rates.

Goldman Sachs’ optimism in the AI sector contrasts with a more cautious approach taken by other investment banks, according to the report. Bank of America strategists have warned that AI won’t save technology stocks from the impact of higher interest rates, while Morgan Stanley believes the AI bubble is nearing a peak.

Valuing the scale of the benefits from AI and identifying the winners and losers in the AI space remain challenges, the report said. However, Goldman Sachs believes that given the valuations of the dominant incumbent companies are high but not excessive, the economy is still in the early stages of a typical technology wave. This suggests that there will be further emergence of new entrants in the space and higher valuations in this part of the market.

One of the industries that are expected to increasingly adopt AI-powered solutions is health care. Venture firms are investing in startups that leverage the technology to revolutionize patient care, drug discovery and clinical note-taking.