AI spending boom is boosting profits now, but could pressure Big Tech returns later: Goldman Sachs
View original at seekingalpha.comAI spending boom is boosting profits now, but could pressure Big Tech returns later: Goldman Sachs [Server room] gremlin The artificial intelligence investment boom has helped propel S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]) profitability to record levels, but Goldman Sachs warns that the same spending wa…
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Major cloud operators will spend roughly $770 billion on capital expenditures in 2026, equivalent to about 100% of their operating cash flow
60% confidenceEvery one percentage point change in S&P 500 ROE is associated with roughly a one-turn change in the market's P/E multiple
60% confidenceApple is expected to experience the sharpest ROE drop next year, followed by Nvidia, Alphabet and Meta
60% confidenceThe S&P 500 currently trades at about 21 times forward earnings, a level that ranks in the 87th percentile since 1980, while return on equity has climbed to a record 22%
60% confidenceThe seven largest technology stocks collectively generate a 44% return on equity, up nine percentage points over the past three years
60% confidenceImproving revenue estimates, growing customer backlogs and expanding margins among major cloud providers are evidence that AI investments are beginning to generate returns
60% confidenceAI adoption will eventually increase revenue and earnings per employee across corporate America
60% confidenceThe S&P 500 has returned 9% year-to-date despite a decline in valuation multiples, with consensus forward 12-month earnings estimates rising 17% while the P/E ratio contracted from 22x to 21x
60% confidenceEconomics for AI models are expected to improve as computing costs per token decline while pricing stabilizes
60% confidenceRecord corporate profitability has become a key pillar supporting elevated U.S. stock valuations
60% confidenceThe broader productivity benefits of AI could ultimately offset near-term headwinds from AI infrastructure spending on Big Tech profitability
60% confidenceMore than half of S&P 500 companies discussed AI-related productivity initiatives during recent earnings calls, though relatively few have yet quantified the financial impact
60% confidenceSemiconductor net profit margins are approaching 50%, supported by pricing power and strong competitive positions
60% confidenceDepreciation and amortization expenses for hyperscalers will rise from 7% of revenue in 2022 to 12% by 2027
60% confidenceConsensus forecasts imply that return on equity for the largest technology companies will decline by an average of seven percentage points next year
60% confidence
Data points we hold from this source
| S&P 500 Index Fund · margin | 22 percent_ROE |