Goldman Sachs tackled the “most important question for the U.S. equity market outlook” on Monday: whether the market is “correctly valuing the benefits from AI.” The answer is a qualified yes, a denial that company valuations are at “bubble levels,” and a finding that the market is, shall we say, excessively optimistic.
The U.S. equity market may have already incorporated a significant amount of the potential long-term value generated by AI, according to a new analysis from the investment bank. Some “simple arithmetic,” analysts Dominic Wilson and Vickie Chang write, suggests market pricing for AI gains is running “well ahead of the macro impact,” with the valuation surge in AI-related companies approaching the upper limits of plausible economy-wide benefits.
While Goldman’s portfolio strategy team maintains that company valuations are high but not yet at “bubble levels,” a macro approach helps set constraints on “what is collectively possible.”
What’s a few trillion dollars, anyway?
The report estimates that the Present Discounted Value (PDV) of the capital revenue resulting from generative AI for the U.S. economy has a baseline estimate of $8 trillion. Although this calculation is inherently uncertain, the plausible range for these future capital revenues sits between $5 trillion and $19 trillion. Significantly, these projected benefits are sufficient to justify current and anticipated levels of investment spending on AI-related capital expenditure (capex), a major concern in the financial media of late. On the other hand, the market’s enthusiasm appears to have sprinted far beyond the baseline macro calculations.
