Too early to buy the dip?$NVDA -7%$CRWD -9%$PLTR -12%$AMD -15%$DUOL -24% pic.twitter.com/w1zbHq6qJo
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When AI’s ‘inevitable slowdown’ comes it could tank the S&P 500 by up to 20%, Goldman Sachs says
Valuations are high, but they are actually lower than they were in the dotcom boom of 2000, Goldman says. There is one danger looming, the bank notes, and that is the “inevitable slowdown” in capital expenditures by the “hyperscaler” AI companies, (Amazon, Alphabet, Amazon, Meta, Microsoft, and Oracle).
Under what Goldman calls “an extreme scenario in which the hyperscalers cut capex back to 2022 levels,” the “lost” revenues to AI companies would represent a 30% cut to Goldman’s estimate of $1 trillion in total sales growth across the S&P 500 companies next year. In turn, “a reversion of long-term growth estimates back to early 2023 levels would imply 15%–20% downside to the current valuation multiple of the S&P 500.”
AI stocks rose 32% in 2024 and 17% year to date, Goldman says, and “investors increasingly ask us whether current U.S. equity prices are reflective of overly optimistic investor expectations.” But tech stocks are currently trading below historic bubble levels, Hammond’s team wrote. “The five largest stocks in the index (NVDA, MSFT, AAPL, GOOGL, AMZN) trade at P/E multiple of 28x, compared with 40x at the peak in 2021 and 50x at the peak in the Tech Bubble [of 2000].”