Be cautious of AI 'euphoria' as the sector is not a near-term investment play, Goldman Sachs' top stock strategist says
Goldman Sachs' chief US equity strategist told investors that AI trades are long-term investments.
"There's a lot of euphoria around it," David Kostin told Bloomberg TV on Tuesday.
Mega-cap names like Meta and Alphabet are benefitting from AI integration now.
David Kostin, the chief US equity strategist at Goldman Sachs, urged caution on artificial intelligence investments as these aren't necessarily near-term plays and their implications remain uncertain.
"The AI trade is likely to play out over a longer-term period of time," Kostin told Bloomberg TV on Tuesday. "There's a lot of euphoria around it. And some of the stocks that are likely to benefit from [this are] the larger cap tech stocks that have done great: Meta, Alphabet, Google, Microsoft, Amazon to a certain degree."
He added that revenue and growth prospects for Big Tech are likely to benefit from integration.
There's a significant value add to AI for companies. Integrating the technology could increase productivity and cut down on operating costs through automated labor.
Meta, for example, announced plans to incorporate generative AI into the social media giant's advertisements. Kostin added that AI can boost net margins by 400 basis over the course of a decade.
These tech companies will likely "outperform but it's not necessarily [AI] that lifts you to a to a higher level," the firm's top stock strategist says. "And the question now is then: 'Well, over what period of time are the generative AI benefits that may inure to corporations?"
AI comes with a lot of uncertainty, Kostin says, citing potential "issues of dislocated employees." He added: "Do taxes go higher? What exactly are the externalities there?"
Others on Wall Street have expressed similar concerns. Michael Hartnett, chief investment strategist at Bank of America Global Research, described the AI sector as in a "baby bubble" for now in a recent note to clients.
The AI rush began rattling markets in late 2022, after the launch of ChatGPT, OpenAI's open-language chatbot. Suddenly, companies seemed to jump on the opportunity to capitalize on anything related to AI. There were 168 mentions of AI during first-quarter earnings calls for Meta, Alphabet, Microsoft and Amazon.
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