“Goldman Sachs advises buying AI shares amid slump Goldman Sachs thinks it’s time to buy AI shares, which have fallen 11% since July. The bank expects an increase in the profits of AI companies and the energy sector related to this technology.”, — write on: unn.ua
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“We expect lower interest rates to support IT projects, economic policy to become less uncertain after the election, and tangible progress in AI developments to be presented at upcoming conferences,” Faris Murad, vice president of Goldman’s U.S. individual baskets team, wrote in a note to customers on Thursday.
Goldman’s Broad AI basket, which includes companies such as Nvidia Corp., Microsoft Corp., Apple Inc., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Oracle Corp., has fallen 11% from its 2024 high reached on July 10. The market’s weakness extends beyond Magnificent 7 shares. Earlier this year, Goldman launched two baskets targeting growing demand for data centers and energy to support AI development. But since mid-July, the AI data center basket is down 8%, while the Power Up America basket has lost 5%.
Traders’ expectations of a half-percent interest rate cut by the Federal Reserve at its meeting, which ends on Wednesday, caused rotation from megacap technology stocks to economically sensitive segments of the market. In addition, the latest reporting season showed that corporate spending on AI is not producing the expected results as quickly as investors had hoped.
While that has some investors worried, Goldman sees it as a buying opportunity.
“There is too much pessimism about AI right now,” Murad writes. “AI baskets are cheap relative to earnings trends today and may need another bad news backdrop to decline further, which we think is unlikely.”
Fundamentals play a key role in Goldman’s thesis. The bank expects the net income of AI-related companies to roughly double over the next 12 months. They also see further growth in the energy sector associated with this technology.
“The performance of the energy theme this year is driven primarily by earnings growth in this segment, as independent power producers and regulated US utilities provided positive data center updates in the latest reporting season,” Murad wrote.
For example, independent power producer Vistra Corp. is up 131% this year, and Constellation Energy Corp. rose by 69%. Both companies are part of the Power Up basket and typically trade in the context of AI-related sentiment. While they’ve lost some momentum since hitting highs in late May, both recently reported better-than-expected results, and investment in AI will continue to push shares of these energy companies higher, Goldman said.
“We continue to see data centers as the largest driver of energy demand growth in the US,” Murad concluded.
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