Goldman Sachs Says the AI Trade Is Barely Started. The Stocks That Got You Here Will Not Take You There
Goldman Sachs says the AI spending cycle is just getting started, but the stocks that made investors rich in the last leg may not be the ones that do it in the next one. Knowing which part of the stack…
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Luke Barrs, Chief Business and Client Officer for Fundamental Equities at Goldman Sachs Asset Management, went on CNBC this morning and made two arguments that most viewers will only half-hear. The first is that the AI capital spending cycle is closer to a beginning than a peak, because the American economy is shifting from consumer-led growth to corporate capex-led growth. The second, which matters more if you already own the winners, is that the market has turned selective and leadership is rotating away from the names that carried the last leg.
Both can be true. You can be right about AI as a multi-year force and still own the wrong part of it. That is the tension worth sitting with, because the stocks that turned every dip into a bid over the last two years, NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) chief among them, are no longer the only place the earnings story is showing up.
Capex Is Now the Growth Engine
Barrs framed it plainly: “The backdrop we see for equities is still constructive. It’s part of this transition we’re seeing especially in the US away from a consumer led economy to one that is very much corporate capex led.”
Capital expenditure is what companies spend to build the productive base of the business, meaning data centers, fabs, power, and networking gear. When hyperscalers such as Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG, NASDAQ:GOOGL), and Meta (NASDAQ:META) keep revising their spending plans upward rather than flat, that flows directly into supplier revenue.
NVIDIA said on its August 26 call that the top five hyperscalers are expected to reach nearly $800 billion in 2026 and $1.3 trillion in 2027 in capex, with the cloud industry backlog exceeding $2 trillion.
A capex-led economy behaves differently from a consumer-led one because those budgets are committed further in advance and unwind slowly. The other edge is that budgets committed in advance are also harder to reverse if returns disappoint.
Headline Growth vs. Organic Growth
Barrs cited US “Earnings 50% year on year” before offering the adjustment: “But even when you strip out some of that noise, it’s still looking like 25 to 30% organic growth in a lot of these areas. That is a hugely positive statement.”
The 50% figure is inflated by tariff refunds and accounting effects. Volunteering the adjusted figure rather than the flattering headline is worth crediting.
Barrs works for a firm with an obvious commercial interest in investors staying in equities, and readers should weigh that. Even so, the adjusted figure sits well above long-run averages and squares with what companies including Palantir (NASDAQ:PLTR) and Micron Technology (NASDAQ:MU) are actually reporting on their income statements.
Beat and Raise, or Get Punished
Barrs said the market’s tolerance has narrowed: “If you can beat and raise, markets are going to reward you. If you can’t show that positive forward guidance, there’s going to be a lot more scrutiny around that forward outlook.”
Beating the quarter and raising the outlook for the quarters ahead is the bar. Forward guidance drives the reaction now more than reported results.
Micron raised fiscal Q4 revenue guidance to $50 billion ±$1 billion with gross margin near 86%, and Palantir raised full-year revenue guidance to $8.15 billion–$8.16 billion at 82% YoY growth. Companies without that visibility are getting sold on otherwise clean quarters. This is the single behavioral change to internalize because it changes what owning earnings season feels like.
Rotation and the Monetization Hinge
Barrs described the shift as: “We’re seeing a natural and quite healthy rationalization of some of the things we saw through the earlier part of the year. We’re seeing a broadening out of that perspective.”
He added: “We’re really at the early stage of this. The monetization of that capital investment spend is going to be a key variable that the market focuses on.”
Monetization means turning the equipment sale into a durable stream of revenue that pays for the equipment. The market is shifting its focus from who sells the chips to who earns a return on the money being spent on them.
That question splits the stack. Chip suppliers such as NVIDIA and Taiwan Semiconductor (NYSE:TSM) already booked the revenue, per NVIDIA’s Q2 FY27 8-K. Infrastructure names such as CoreWeave (NASDAQ:CRWV) and Constellation Energy (NASDAQ:CEG) are still spending to earn theirs, with CoreWeave posting free cash flow of -$5.74 billion in Q2.
The power, cooling, and networking suppliers behind those data centers are the part of the trade most investors overlook, and we profiled seven of them in a free report on AI infrastructure beyond the chipmakers. If returns on AI spending disappoint, capital budgets get revisited, and today’s healthy rotation would look different in hindsight.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks.
