Goldman Sachs says the stock market’s frenzy over artificial intelligence is increasingly divorced from reality as adoption of emerging technologies appears to be slower than expected. “Our conversations with investors are one of skepticism about the late stages of AI adoption,” Ryan Hammond of Goldman Sachs’ portfolio strategy research team said in a recent note to clients. “Even for investors who are bullish on the potential benefits of AI adoption over the long term, There also appears to be considerable uncertainty about the timeline for investors. Goldman Sachs’ AI adoption tracker shows that only 5% of U.S. companies use generative AI to produce goods and services. Goldman Sachs noted that many artificial intelligence-related software companies issued disappointing guidance last earnings season, triggering massive sell-offs. Goldman Sachs has identified four stages of the artificial intelligence industry. The first one revolves entirely around Nvidia. The second phase focuses on companies building and maintaining infrastructure around artificial intelligence, including other chip manufacturers and cloud providers. Stage three—where these software vendors are based—requires companies to adopt AI tools to increase revenue, and in stage four, companies begin to see increased productivity from AI adoption. Phase 1: Nvidia Phase 2: Infrastructure Phase 3: Enabling Revenue Phase 4: Productivity The average Phase 2 stock involved in building artificial intelligence infrastructure is up 26% this year, but Phase 3 stocks have fallen out recently In a sharp pullback, Goldman Sachs said the decline averaged 19% between February and May. “Investors are increasingly concerned about the prospect of ‘overinvestment’ in artificial intelligence, especially among hyperscale companies,” Hammond said. Relative to cash flow, tech, media and telecom capital spending and R&D “remain well below tech Bubble level”. Artificial intelligence has dominated the market since the launch of ChatGPT in late 2022, sparking a buying frenzy on Wall Street and briefly pushing Nvidia’s market value to more than $3 trillion. The ChatGPT chatbot, which can accept written input from users and generate human-like responses, immediately became a worldwide sensation and became the fastest-growing software in history. The Wall Street investment bank said the upcoming second-quarter earnings season is the next key test of the artificial intelligence industry’s durability and could be the key to investor optimism. Goldman Sachs said investors should pay attention to revised sales forecasts from artificial intelligence-related companies.
