Goldman Sachs Says Big Tech Valuation Premium Is Fading

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Summary · why it matters

Goldman Sachs Research says the forward price-to-earnings multiples of the largest S&P 500 companies have fallen sharply and are now converging toward the valuation of the other 495 stocks in the index, eroding a valuation premium mega-cap technology names have held for years. The firm points to two pressures behind the de-rating: a higher cost of capital and dramatically greater capital intensity. Microsoft, Amazon, Meta Platforms and Alphabet are committing enormous sums to artificial-intelligence infrastructure, including data centers, chips and power capacity, investments that may support future growth but consume cash today, while higher borrowing costs reduce the present value investors assign to future earnings and cash flows. Goldman's takeaway is that mega-cap tech is no longer priced as dramatically different from the rest of the market, leaving those companies to prove their growth deserves a premium, and investors should focus less on headline AI spending and more on the returns generated from it.

Impact on stocks 5

Artificial Intelligence▼ · 4 stocks
Amazon.com Inc
AMZN
▼ NegativeCapitalrelevance

Goldman notes Amazon's massive AI infrastructure capex consumes cash today and its valuation premium is eroding as capital intensity rises.

Alphabet Inc Class C
GOOG
▼ NegativeCapitalrelevance

Alphabet's heavy AI infrastructure spending and higher cost of capital are cited as pressures eroding its valuation premium.

Meta Platforms Inc.
META
▼ NegativeCapitalrelevance

Meta's enormous AI infrastructure commitments consume cash today and its valuation premium is fading per Goldman.

Microsoft Corporation
MSFT
▼ NegativeCapitalrelevance

Microsoft's large AI capex and higher borrowing costs are cited as reasons its valuation premium is converging toward the rest of the index.

Financials▲ · 1 stocks
Goldman Sachs Group Inc
GS
± Mixedrelevance

Goldman Sachs Research is the author of the report, not a subject of the valuation de-rating it describes.

Theme Impact 4

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