Goldman Sachs Advises Investors to Buy the Dip in AI Stocks
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Goldman Trading Desk Says It's Time to Buy the Dip in AI Stocks
Artificial intelligence-related stocks have taken a beating recently, but with lower interest rates on the way and fundamentals remaining strong, Goldman Sachs Group Inc.'s trading desk thinks it's time to buy the dip. "We expect lower interest rates could support IT projects, economic policy to become less uncertain after the election, and tangible progress with AI products to be presented in upcoming conferences," Faris Mourad, vice president of Goldman's US custom baskets team, wrote in a note to clients on Thursday.
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Goldman Sachs says to buy the dip in AI
Artificial intelligence-related stocks have taken a beating recently, but with lower interest rates on the way and fundamentals remaining strong, Goldman Sachs Group Inc.'s trading desk thinks it's time to buy the dip. "We expect lower interest rates could support IT projects, economic policy to become less uncertain after the election, and tangible progress with AI products to be presented in upcoming conferences," Faris Mourad, vice president of Goldman's US custom baskets team, wrote in a note to clients on Thursday. Goldman's Broad AI basket -- which includes companies like Nvidia Corp., Microsoft Corp., Apple Inc., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Oracle Corp. is down 11% from its 2024 high reached on July 10. The weakness goes beyond the selloff in Magnificent 7 stocks. Earlier this year, Goldman launched two baskets focused on booming demand for data centers and power to drive AI development. But since mid-July, the AI data centers basket is down 8%, and the Power Up America basket has lost 5%. Traders' expectations for a half-point interest-rate cut from the Federal Reserve at its meeting concluding Wednesday has fueled a rotation from megacap technology stocks into economically sensitive corners of the market. In addition, the latest earnings season showed that corporate spending on AI isn't paying off as soon as investors had hoped. While that has sparked fear in some investors, to Goldman it's a buying opportunity. "There's too much AI pessimism," Mourad wrote. "AI (baskets) are cheap to year-to-date earnings trends, they may require fresh bad news to go down further, which we think is unlikely." Fundamentals play a key role in Goldman's thesis. The bank expects net income from AI companies to roughly double in the next 12 months. It also sees more growth in power generation tied to the technology. "The power theme outperformance this year is driven primarily by the earnings growth of this space as US independent power producers and regulated utilities provided positive updates on data centers this last earnings season," Mourad wrote. For example, independent power producer Vistra Corp. has gained 131% this year, and Constellation Energy Corp. has risen 69%. Both are in the Power Up basket and typically trade in line with AI-related sentiment. Granted they've lost some steam since hitting highs in late May. But both recently reported earnings that exceeded expectations, and capital investments around AI will keep pushing power stocks like these higher, according to Goldman. "We continue to see data centers as the single largest driver of power demand growth in the US," Mourad wrote.
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Goldman Sachs' trading desk recommends buying AI stocks during the current dip, citing potential for long-term growth despite short-term interest rate concerns.
Goldman Sachs Sees Opportunity in AI Stock Dip
In a bold move that has caught the attention of investors worldwide, Goldman Sachs' trading desk has issued a recommendation to buy artificial intelligence (AI) stocks during the current market dip. This advice comes at a time when the AI sector has experienced a slight pullback, primarily due to concerns over rising interest rates
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.The Rationale Behind the Recommendation
Goldman Sachs' strategists argue that the recent decline in AI stock prices presents a unique buying opportunity for investors. They believe that the long-term growth potential of AI companies far outweighs the short-term pressures caused by macroeconomic factors such as interest rate fluctuations
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.The investment bank's analysts point to several key factors supporting their bullish stance on AI stocks:
- Continued innovation in the AI sector
- Increasing adoption of AI technologies across various industries
- Strong fundamentals of leading AI companies
Market Context and Interest Rate Concerns
The recommendation comes amid a backdrop of rising interest rates, which have traditionally been seen as a headwind for growth stocks, including those in the technology and AI sectors. Higher interest rates can make borrowing more expensive for companies and potentially reduce future earnings when discounted to present value
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.However, Goldman Sachs contends that the current interest rate environment is already priced into AI stock valuations, suggesting that further downside may be limited
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.Specific AI Stocks in Focus
While Goldman Sachs has not publicly disclosed a comprehensive list of recommended AI stocks, industry observers speculate that the advice likely encompasses a range of companies, including:
- Large tech giants with significant AI investments
- Specialized AI chip manufacturers
- Cloud computing providers with AI capabilities
- AI-focused software companies
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Potential Risks and Considerations
Despite Goldman Sachs' optimistic outlook, investors are advised to consider potential risks:
- Regulatory challenges facing AI companies
- Competition within the AI sector
- Geopolitical tensions affecting global tech supply chains
Market Response and Expert Opinions
The market has shown a mixed response to Goldman Sachs' recommendation. Some investors have embraced the advice, leading to increased buying activity in select AI stocks. Others remain cautious, citing the need for a more stable interest rate environment before making significant investments
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.Industry experts have weighed in on Goldman Sachs' stance, with many agreeing that AI represents a transformative technology with long-term growth potential. However, some analysts caution against blanket recommendations, emphasizing the importance of selective stock picking within the AI sector
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