Goldman Sachs analysts have weighed in on the potential of artificial intelligence (AI) and its impact on equity markets.
Historically, significant technological advancements have often led to the outperformance of the technology sector, resulting in higher valuations that attract new players and, occasionally, culminate in a market bubble, the analysts wrote.
“The bursting of bubbles has typically been followed by a renewed period of leadership, with a new group of dominant companies emerging in the sector, and the impact of the technology reshapes other industries,” they said.
Tech is already the largest sector, especially in the U.S. market, and stock concentration has increased. However, the key for Goldman Sachs analysts is that this concentration isn't unprecedented in comparison to historical experiences with new innovations.
“Current valuations in the technology sector are not as stretched as in previous bubble periods and the 'early winners' that have enjoyed the strongest returns have unusually strong balance sheets and returns on investment.”
“We believe we are still in the relatively early stages of a new technology cycle that is likely to lead to further outperformance,” the analysts further added.