AI Fears Impact US Stock Valuations

Goldman Sachs analysts have raised concerns that artificial intelligence could erode long-term U.S. corporate growth, leading to renewed scrutiny over how heavily stock valuations rely on profits projected beyond the next decade, especially in the software sector. Profits expected more than 10 years into the future, known as terminal value, now account for about 75% of the S&P 500's equity value, a near 25-year high. This situation mirrors optimistic periods like the dotcom boom. Investor concerns have intensified since Anthropic launched new AI tools, prompting fears that these products could pressure traditional software providers. The S&P 500 software and services index has already dropped about 17% this year. Meanwhile, 'Big Tech' companies like Alphabet Inc., Microsoft, Meta Platforms, and Amazon (company) are investing billions in AI capital expenditure, which has squeezed cash flows and tested Wall Street's patience, despite expectations of future gains. Goldman Sachs anticipates that the debate around AI disruption and its impact on terminal values will persist for several quarters.