AI Stocks: Goldman Sachs Analysts Encourage Investors to Buy the Dip
Goldman Sachs analysts are advising investors to take advantage of the recent dip in AI stocks, stating that AI-related companies are still fundamentally strong. In a recent note titled "Buy the dip in AI," the investment bank highlighted that their AI data centers basket (GSTMTDAT) and AI PC & mobile device upgrades basket (GSXUPCAI) have returned to benchmark levels, while the Broad AI basket (GSTMTAIP) is down 12% from its year-to-date highs.
Despite the drop, these stocks have outperformed earnings expectations by an average of 8%, trading at a discount to forward earnings. Goldman Sachs pointed out several factors likely to support a recovery in AI stocks, including lower interest rates boosting IT projects, reduced economic policy uncertainty after the upcoming election, and progress in AI products at industry conferences.
Recent developments, such as NVIDIA's CEO highlighting the high return on investment for hyperscale customers, have also contributed to the positive outlook. The bank believes that valuations in the AI space have normalized, with their AI data center and broad AI baskets now slightly above the S&P 500 in terms of valuations.
Goldman Sachs stated that "AI expressions are cheap to YTD earnings trends," and further declines would likely require "fresh bad news," which they consider unlikely. Additionally, they highlighted the increasing role of data centers in driving U.S. power demand, projecting a significant impact on power demand growth through 2030.
In conclusion, Goldman Sachs analysts are optimistic about the future of AI stocks and recommend seizing the opportunity to buy the dip. It's essential for investors to consider these factors and take advantage of the potential for growth in the AI sector. By following this advice, investors can potentially benefit from the expected recovery and growth in AI-related companies.