Goldman Sachs(US:GS) Hua Er Jie Jian Wen·2025-09-07 11:04Core Insights - The market is experiencing significant growth driven by AI-related stocks, with a 32% increase in 2024 and a further 17% rise in 2025, leading to a high expected P/E ratio of 22 for the S&P 500, which is in the 96th percentile historically [1][2] Group 1: Market Valuation and Growth Expectations - Current market prices imply a long-term earnings growth expectation of about 10%, slightly above the historical average of 9%, but well below the 16% during the 2000 tech bubble and 13% at the 2021 peak [2] - The average expected P/E ratio for the top five tech giants (NVIDIA, Microsoft, Apple, Google, Amazon) is 28, significantly lower than the 40 at the 2021 peak and 50 during the tech bubble [2] Group 2: AI Investment and Infrastructure - Goldman Sachs categorizes the evolution of AI trading into phases, with the current phase being a "frenzy of infrastructure investment," fueled by substantial capital expenditures from major cloud service providers, which are projected to reach $368 billion by 2025 [3] - This massive investment is translating into increased orders and profits for suppliers of semiconductors, power equipment, and technology hardware, driving their stock prices up [3] Group 3: Risks and Market Sentiment - There is a warning regarding the potential slowdown in capital expenditures, which could lead to a 15-20% correction in stock valuations if spending reverts to 2022 levels, impacting S&P 500 expected sales growth by approximately 30% [4] - Analysts predict a significant deceleration in capital expenditure growth by late 2025 and into 2026, which poses a risk to the valuations of related stocks [4] Group 4: Future Market Phases - As the infrastructure investment phase peaks, the market is looking towards the next phase, where AI-enabled companies are expected to drive revenue growth [5] - Investor interest in the "third phase" companies, particularly in the software sector, is limited due to concerns about AI potentially disrupting existing pricing models and profit margins [6] - The long-term "fourth phase" of AI-driven productivity improvements is still in its early stages, with only 58% of S&P 500 companies mentioning AI in earnings calls, but few can quantify its impact on current profits [6]