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Investing.com - Goldman Sachs has dismissed concerns about the sustainability of artificial intelligence (AI) investment levels, according to a recent Global Economics Analyst report. This comes as the S&P 500, tracked by SPY, trades near its 52-week high of $673.95, with an impressive 27.27% return over the past six months, according to InvestingPro data.
The investment bank notes that AI applications are demonstrating productivity improvements when deployed, and these benefits require significant computational power as models grow in size faster than computation and energy costs fall. With the broader market showing strong fundamentals, including a P/E ratio of 14.65, investors seeking detailed analysis of AI-driven opportunities can access comprehensive metrics through InvestingPro’s advanced screening tools.
Goldman Sachs points out that current AI investment as a share of U.S. GDP remains below 1%, significantly smaller than previous major technology cycles which ranged from 2-5%, and estimates the present-discounted value of capital revenue unlocked by AI productivity gains in the U.S. at approximately $8 trillion, with plausible estimates ranging from $5 trillion to $19 trillion. The market’s response to this potential is reflected in the S&P 500’s market capitalization of $671.94 billion, suggesting significant room for growth in AI investments.
The report acknowledges legitimate concerns about whether today’s investors will benefit from their spending, especially given the rapid depreciation of tech hardware, and notes that performance of first movers has been mixed in previous infrastructure builds, with fast followers often achieving outsized gains by leveraging pre-built infrastructure.
Goldman Sachs suggests the current AI market structure provides little clarity on long-term winners, with first-mover advantages stronger when complementary assets are scarce and production is vertically integrated, but weaker during periods of rapid technological change like today.
In other recent news, Deutsche Bank has increased its forecast for S&P 500 third-quarter earnings growth to 10.7% year-over-year, highlighting a favorable macroeconomic environment. This adjustment comes as U.S. economic growth shows solid performance, with GDP growth expected at 2.8% and some estimates nearing 4%. Additionally, Deutsche Bank noted an increase in equity positioning to a one-month high, although it remains moderately overweight. In another development, Goldman Sachs has raised its 12-month price target for the S&P 500 to 7,200, driven by strong earnings performance. The investment bank’s report suggests a positive outlook for equities, encouraging investors to continue purchasing stocks. Meanwhile, Wells Fargo maintains its forecast for two more interest rate cuts by the Federal Reserve before the end of 2025. These cuts are anticipated to occur at the October and December meetings. Overall, these recent developments reflect a positive sentiment among major financial institutions regarding the economic and market outlook.
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