Why it matters: A sharp increase in artificial intelligence spending by America's largest technology companies continues to drive record valuations in the stock market, but analysts at Goldman Sachs caution that a dramatic pullback in investment could significantly reduce those gains. As the AI wave pushes US stocks to new highs, Wall Street's brightest remain split over how much further the story can run.
In a new research note, Goldman's strategists argue that the ongoing surge in capital expenditures by hyperscalers, including Microsoft, Amazon, Alphabet, Meta, and Oracle, have fueled both revenue growth and market enthusiasm for AI infrastructure and chip suppliers such as Nvidia.
Goldman's analysts, led by Ryan Hammond, say that while valuations for AI-linked stocks remain elevated, they are still lower than the frenzied levels reached at the height of the 2000-era dot-com bubble. As of now, the five largest stocks in the S&P 500 – Nvidia, Microsoft, Apple, Alphabet, and Amazon – trade at a price-to-earnings multiple of 28, well below the index's peak multiples of 40 in 2021 and 50 in 2000.
The pace and scale of spending among Big Tech firms underpins much of this optimism. Goldman estimates that total capital expenditure by hyperscalers have already hit $368 billion in 2025, surpassing many forecasts. Those funds have translated into significant real revenues for companies that provide chips, hardware, and cloud services powering AI models and platforms.
However, the analysts flag a singular risk for investors: an eventual and potentially sharp reduction in hyperscaler spending. According to their model, if investment levels were to revert to those last seen in 2022, AI hardware and service providers could lose out on as much as 30 percent of the projected $1 trillion in S&P 500 sales growth expected for next year. Such a reversal in growth expectations could, in an "extreme scenario," push the S&P 500's overall valuation multiple down by 15 percent to 20 percent.
Despite these caveats, Goldman is not calling the current environment a bubble. The firm emphasizes that rapid revenue generation from AI demand distinguishes today's market from earlier speculative manias. Nonetheless, questions persist among investors about how long the AI boom can continue. So far in 2024, stocks in the artificial intelligence sector climbed 32 percent in 2024 and have risen another 17 percent so far in 2025.
Analysts generally expect a sharp deceleration in capital spending to arrive toward the end of 2025 or in 2026, but until now, leading technology firms have continued to revise their guidance upward, suggesting that the inflection point may still be some way off.
AI boom drives record S&P 500 valuations, but Goldman Sachs warns of $1 trillion risk ahead
