AI fears drive US stock investors to rethink long-term growth bets, says Goldman

Fears 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.

Fears 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% 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% 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%. High-growth stocks would ⁠see a much larger hit, with valuations falling by roughly 29%, compared with about 10% 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% 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.