AI fears drive U.S. stock investors to rethink long-term growth bets, says Goldman
Growing concerns that AI could disrupt long-term corporate growth are prompting U.S. investors to reassess stock valuations, particularly in high-growth sectors like software, as terminal value now accounts for about 75% of the S&P 500’s equity value, near a 25-year high, according to Goldman Sachs. The S&P 500 software and services index has fallen around 17% this year amid fears AI tools could erode future revenues and margins. Goldman warns that high-growth stocks are especially vulnerable to downward revisions in long-term growth assumptions, with a 1 percentage point decline potentially cutting their valuations by 29%. The firm expects uncertainty around AI’s impact on terminal values to persist for several quarters.
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ShareSave for laterPlease log in to bookmark this story.Log InCreate Free AccountFears that artificial intelligence could disrupt long-term U.S. corporate growth have renewed investor focus on how much of stock valuations depend on profits expected beyond the next decade, particularly in sectors such as software, Goldman Sachs analysts said. Profits expected more than 10 years into the future - often called terminal value - now account for about 75 per cent of the S&P 500’s equity value, near a 25-year high, the Wall Street brokerage said. “Today’s share of value in the terminal value is elevated versus history and mirrors other periods where investor long-term growth expectations were increasingly optimistic, including the dotcom boom,” Goldman said in a note on Thursday. Investor concerns around AI disruption have been building since Anthropic launched new tools that automate tasks across areas such as marketing and data analytics, raising questions about the pressure such products could put on traditional software providers. The S&P 500 software and services index has dropped about 17 per cent so far this year, broadly driven by fears that new AI tools could hurt future revenue growth and profit margins. Goldman estimates that every one percentage point decline in assumed long-term growth would cut the combined enterprise value of S&P 500 companies by about 15 per cent. High-growth stocks would see a much larger hit, with valuations falling by roughly 29 per cent, compared with about 10 per cent for low-growth equities. “The value of a high-growth company is especially sensitive to changes in its long-term growth outlook,” Goldman added. Goldman expects the debate around AI disruption, and therefore uncertainty about many companies’ terminal values, will persist for at least several quarters. “The threat of disruption will likely represent a persistent overhang until later stages of AI adoption,” they added. Goldman noted that in recent quarterly earnings calls, only 5 per cent of S&P 500 firms discussed financial metrics beyond five years. “We think more managements should prioritize discussions of the long-term outlook (to investors),” Goldman added.
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