Is this U.S.-China selloff a buy? A top Wall Street voice weighs in
Investing.com -- Goldman Sachs said the equity market is showing signs that “rhyme with previous bubbles” but argued that the current rally, particularly in technology stocks, “has, so far, been driven by fundamental growth rather than irrational speculation.”
In a note to clients on Wednesday, Goldman Sachs said that while “the equity bull market and the continued ascent of leading technology companies have led many to worry that we are in a bubble,” several factors distinguish today’s environment from past speculative excesses.
“There are elements of investor behaviour and market pricing currently that rhyme with previous bubbles, including the rise in absolute valuations, high market concentration, increased capital intensity of leading companies and the emergence of vendor financing,” Goldman said.
However, the bank added that “the leading companies that have seen the strongest returns have unusually strong balance sheets,” and that “the AI space has, so far, been dominated by a few incumbents,” rather than the flood of new entrants that typically characterises bubbles.
Goldman said that bubbles tend to emerge “when there is a combined surge in stock prices and valuations to an extent that the aggregate value of companies associated with the innovation exceed the future potential cash flows that it is likely to generate.”
The bank noted that while “valuations of the technology sector are becoming stretched,” they are “not yet at levels consistent with historical bubbles.”
“While it appears we are not in a bubble yet,” Goldman Sachs concluded, “high levels of market concentration and increased competition in the AI space suggest investors should continue to focus on diversification.”