Name: Goldman Sachs: Leading players in AI will continue to dominate
Uploaded: 2025-12-04T15:35:25.722Z
Duration: 3 min 10 s
Description: Luke Barrs, Chief Business and Client Officer for Fundamental Equity at Goldman Sachs Asset Management discusses the AI trade.

Luke Barrs, Chief Business and Client Officer for Fundamental Equity at Goldman Sachs Asset Management discusses the AI trade.

San Francisco

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

Goldman Sachs representatives discussed the current state of global equity valuations, noting that while some sectors, particularly AI and technology, have elevated multiples, these are largely justified by strong earnings growth. The firm highlighted that investment in AI infrastructure, such as hyperscaler capital expenditures, is expected to continue rising, supporting further earnings expansion.

Despite substantial spending and technological advancements, widespread profitability from AI applications has yet to fully materialize. Goldman Sachs believes that leading market share players in AI have the resources to maintain their dominance, with market leadership expected to persist as new use cases are developed over the next several years.

Goldman Sachs: Leading players in AI will continue to dominate

Luke, thank you very much indeed for joining Schoolbox today. Well, you're there for Fundamental Equity Client Portfolio Management. Have the fundamentals stayed in line with valuations or have they divorced? I think broadly, Steve, they've stayed in line. I think at the moment what you see across global equities is obviously a healthy backdrop for returns this year. Interestingly, actually, EM outperforming DM for the first time in a long time. But if you look at valuations, yes, they're elevated in certain areas, but we're not talking about very stretched or significantly elevated valuations in most places because the earnings have continued to follow suit. And so you take some of those areas where people have most concern, let's take AI and the technology trade, actually, whilst multiples are elevated versus five years ago, most of that is justified on what have been incredibly strong earnings underlying that trend. Absolutely. And there's some extraordinary growth figures attached, though, as well. But are we looking at the wrong measure? When I and some of my viewers have concerns about one year forward PE, do we need to actually look further out in terms of these AI valuations, these technology valuations, and actually just expand our timeline? I think there's a couple of things that we have to do. And when we look at these businesses, one, let's look at cash flow, not just earnings. And actually, many of these businesses that show more elevated near-term earnings numbers and near-term earnings multiples actually look very healthy on a cash flow basis. So that's point number one. And then secondly, yes, I think this is a multi-year trend, and we're going to see the continuation of that going into next year. So take the AI CapEx story for this year, 55% increase in hyperscaler CapEx, roughly $360 to $370 billion of CapEx investment in 2025. That's going to go up another 25% to 30% next year. So the continuation of that trend driving the hardware side of technology, driving the AI trend forwards, we think can continue to drive earnings. And so whilst multiples in the near term do look elevated, we think they are still reasonable in the context of what is a transformational trend. Transformational spending, transformational technology, but transformational profits, Luke? We haven't got the use case or the profit case coming through yet, have we? We're spending a lot of money. There's a lot of money on picks and shovels, and the invidious of this world are doing very well out of it. But we haven't seen the profitability case justified. Do you think another deep-sea-like moment could just kind of wobble the ship a little bit? Well, so again, we're an active investor, and so for us, this is actually really healthy and interesting because selectivity becomes really crucial in this scenario. So I think everything you've said is true. The hardware side of things, the picks and shovels story, even the derivatives into the energy infrastructure side of things and the capital investment we're seeing on grid infrastructure, all is real money earnings driving improved fundamentals. The next stage here is what are the applications? What are the use cases, to your point, in the software side of things? Our view right now is dominant market share players maintain that dominance. They have the capital to invest in model development. They have the capital to invest in continuing to show use case in a way that will maintain that market share position. There could be something disruptive down the line, but at the moment, we still think market share and dominant position is the key driver of success. And so big get bigger, and we think there's a lot of opportunity in that part of the marketplace as we go forward over the next three to five years and see those use cases coming to market.

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Goldman Sachs: Leading players in AI will continue to dominate

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