Strategists at Goldman Sachs have stated that analyst expectations for next year's artificial intelligence spending are overly conservative, and they anticipate further gains for stocks tied to this theme.
The team, led by Ryan Hammond, believes that capital expenditure by hyperscale companies could soar to as high as $1.4 trillion by 2027, supported by robust cash flow and new investment-grade debt financing. This projection stands in stark contrast to the current consensus analyst forecast of approximately $920 billion.
The strategists noted that the increased investment will further support profit growth for AI infrastructure companies. While share prices in this sector have already seen a significant rebound, the team argues these gains have been primarily driven by continually improving earnings expectations.
Goldman Sachs predicts AI capital expenditure by hyperscale data center operators will surpass $1 trillion. Oracle (NYSE: ORCL) shares fell more than 8% on Thursday after the company reported quarterly capital expenditure that exceeded expectations, with the majority allocated to data center construction.
Although Oracle's capital expenditure figures raised investor concerns, they also spurred gains for chipmakers and other AI infrastructure-related stocks. The Goldman team pointed out that market worries about valuations are mounting.
The median price-to-earnings ratio for AI infrastructure companies has risen to 26 times, reaching its highest level since OpenAI launched ChatGPT in late 2022. However, they also noted that the recent valuation reassessment has primarily focused on semiconductor and power-related companies outside of utilities, rather than on hyperscalers or memory chip stocks.
In a separate report addressing the highly anticipated public listing of SpaceX, Ben Snider, Goldman Sachs' chief US equity strategist and a colleague of Hammond's, stated that record US equity issuance is unlikely to derail the current bull market. Based on sustained earnings growth, he reaffirmed a year-end target of 8000 for the S&P 500 index.
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