Rachel Hartman
Updated on: October 13, 2024 6:54 am GMT
Investors eyeing opportunities in the artificial intelligence (AI) sector may have reason to cheer, as Goldman Sachs suggests now might be the right time to “buy the dip.” Following a decline in AI-related stocks, the finance giant is urging investors to reconsider their positions amid signs of potential recovery.
Goldman Sachs’ Strategy: Seizing Opportunities
The investment landscape for AI stocks has been rocky in recent months. Major firms such as Nvidia and Alphabet saw significant dips, with Goldman Sachs’ AI basket, which includes companies like Apple and Amazon, down about 11% since hitting a peak in early July. However, with lower interest rates on the horizon, experts believe the market could rebound.
Faris Mourad, a vice president at Goldman Sachs, commented, “We expect lower interest rates could support IT projects, making economic policies less uncertain after the election, and enabling tangible progress on AI products presented in upcoming conferences.” This sentiment points to the broader potential for growth as conditions stabilize.
Some key factors supporting this optimistic outlook include:
- Anticipation of a half-point interest-rate cut from the Federal Reserve, which could induce a shift in market dynamics.
- Evidence of increasing corporate spending on AI technologies, although returns on these investments have been slower than expected.
- Goldman’s projection that net income from AI companies could double over the next year, offering solid growth prospects.
The “Unsexy” AI Stocks: Uber and Dell at the Forefront
As part of its latest analysis, Goldman Sachs has spotlighted several “unsexy” AI stocks, which are positioned to perform well despite their lackluster public perception. Among these stocks, Uber Technologies, Inc. (UBER) and Dell Technologies Inc. (DELL) are making waves.
Uber: Leading the Charge in Autonomous Technology
Uber is ranked highly among the unsexy AI stocks. CEO Dara Khosrowshahi emphasized the company’s commitment to advancing its autonomous technology during a recent conference. Uber is already collaborating with over ten companies focused on self-driving innovations, such as Waymo and Cruise.
“We are building the absolute best-of-breed technology,” Khosrowshahi stated, referring to Uber’s progress in mobility software. He further noted that advancements in this area are expected over the next three to five years, positioning Uber as a significant player in the evolving AI landscape.
Dell: Embracing the AI Revolution
Dell Technologies is also highlighted by Goldman Sachs for its strategic positioning in the AI sector. COO Jeff Clarke, attending the same conference, discussed how AI mirrors past technological revolutions, such as the rise of the Internet and personal computers.
Clarke stated, “It took us about 50 years to get electricity in every household, 30 years for 90% Internet adoption, and now we are seeing the same kind of trajectory with AI adoption.” This framing underscores the transformative potential of AI solutions offered by companies like Dell, hinting at promising long-term growth.
Investor Sentiment: Navigating Caution and Optimism
The recent performance of AI stocks has sparked a complex mix of apprehension and hope among investors. Many are still wrestling with fears about future earnings and the sustainability of corporate spending on AI.
Goldman Sachs’ Mourad acknowledged the prevailing pessimism, stating, “There’s too much AI pessimism. AI baskets are cheap based on year-to-date earnings trends. They may require fresh bad news to go down further, which we think is unlikely.”
This insight suggests a shift could be underway, with savvy investors potentially benefiting from lower stock prices.
The Future of AI Investments
As companies continue to invest heavily in AI, the sectors supporting this growth—including power generation and data centers—stand to gain significantly. Mourad pointed out the accelerating demand for power driven by the needs of AI data centers, highlighting that firms like Vistra Corp. and Constellation Energy Corp. have already seen substantial gains this year.
“We continue to see data centers as the single largest driver of power demand growth in the U.S.,” Mourad added, indicating a robust future for companies positioned within this infrastructure.
Conclusion: A Balanced Approach to AI Stocks
In a climate marked by significant challenges, Goldman Sachs believes that now may be an opportune moment for investors to explore AI stocks despite recent declines. Companies like Uber and Dell showcase solid fundamentals and commitment to innovative technologies, positioning themselves as frontrunners in the industry.
If you want to invest in AI, it’s important to have a good plan and know the basics. The market is always changing, so being smart about your choices is key. Some people might follow Goldman Sachs’ advice to buy when prices drop, while others might play it safe. Either way, it’s clear that the world of AI is going to change a lot in the future.
