Sachs of Gold, Man

 

Goldman Sachs looks at the landscape and tries to divine the path ahead for big cloud players. The capex imperative has been established. They have to be first in AI. So they have to spend, like the Spanish spending in search of gold in the 1500s. GS writes: " This means they are investing more in physical assets like data centers, as highlighted by the growing focus on AI." Technology's growth becomes increasingly reliant on infrastructure development and electrification.

The report is entitled: Global Strategy Views: Diversify to Amplify.

They see reasons to cutback on investment in the winners of the last few years, and that seems to be underway. They suggest picking winners among the old [value?] plays that can benefit if AI works to improve their top or bottom lines. They say go to midcaps and foreign markets - something that never seems to work in my brief [5 year] history of paying attn to this stuff.

More from the guys in the know: "High government debt levels are expected to keep longer-term interest rates elevated, potentially limiting the upside for broad equity indices. Despite high valuations, particularly in the US market, the sources suggest continued growth for corporate profits through 2025, providing support for equities."

It's asserted that the old players, the companies based by the barreling hyperscalers, will benefit from the infrastructure building. But wont the cloud people expect their customers to start paying up?

"There is uncertainty about the returns on these investments for Technology companies. Historically, companies building infrastructure in technological revolutions haven't always been the primary beneficiaries. For example, Telecom companies in the late 1990s built the infrastructure that later benefited app-based businesses."

I saw this somewhat first hand. I'd do estimates to tease our what growth might be in the Web. Wouldn't the underlying Internet highway build out stall? "Oh no, I was told." the TC companies dont want to miss out on this. Well, they are still hurting from that experience, aren't they? Full disclosure: It didnt occur to me that the Web would replace magazines and newspapers.

A pretty-dense Apollo paper finds another way to shade the big techies - ala the Magnificent 7: It's seen as a virus created by the Rise of Passive ETFs, which "raises concerns regarding market volatility, liquidity, and the potential for increased concentration in a few dominant stocks." What does Apollo do to make a living? I try to remember.

All this takes place as the Russia-Ukraine war moves into another frightful phase.

Go to: https://www.goldmansachs.com/insights/goldman-sachs-research/global-strategy-views-diversify-to-amplify