Goldman Sachs is pushing back on the growing chorus of AI bubble warnings, arguing that public market valuations still line up with real earnings power rather than speculative excess.
In a new instalment of the Goldman Sachs Exchanges podcast, David Kostin, chief US equity strategist at Goldman, says the AI trade remains grounded in fundamentals, not froth.
Looking at Nvidia (NVDA), he highlights that the increase in stock price has been in lock-step with earnings growth since 2022.
“We are not in an AI bubble in the public markets… In the public market, Nvidia, which is the company that people most associate with AI, the share price has increased by 12-fold in the last three years, and earnings have increased by 12-fold as well. So, pretty much the price and the earnings have matched each other.”
Kostin also points to capital raising trends to show that public markets are not acting like a mania.
“And you can think about the capital availability in the public markets. We have had about 55 IPOs (initial public offerings) in the United States this year, 55 deals greater than $25 million in capital raising. You had 280 deals or so in 2021. That was a very robust raising of capital in the IPO market. And you had nearly 400 deals in 1999. This is an example where there is capital availability in the public markets, but not necessarily ebullient. It is there, but not so dramatic.”
Zooming out, Kostin says today’s valuations may be elevated, but they are nowhere near the extremes seen during earlier bubbles.
“And think about the valuation of the largest companies in the market, many of those associated, of course, with AI. They trade around 30 times earnings. The largest 10 companies in the market traded 40 times earnings in 2021, just after coming out of Covid. And in 1999, the 10 largest stocks traded at 50 times earnings. So you would say that we are not necessarily in a price bubble, if you will, on an absolute basis, still high relative to history, but not nearly what it has been in other periods of time.”
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.