Eben@CANSLIM ResearchGoldman Sachs Global Investment Research remains neutral on equities over a three-month horizon but overweight over 12 months, arguing that strong nominal GDP and profit growth should underpin the earnings cycle even without valuation expansion. In its strategy note, the bank says the twin forces of AI infrastructure capex and rising government borrowing have pushed up the cost of capital, leaving equity risk premia near late-1990s lows. Earnings, not multiple expansion, are now the critical driver of returns, with the S&P 500 forward P/E having fallen from 22x at the start of the year to 19x.
Key Takeaways
- Goldman Sachs Global Investment Research is neutral on equities on a 3-month horizon but overweight on a 12-month view, citing supportive nominal GDP and profit growth.
- The S&P 500’s 12-month forward P/E has fallen from 22x at the start of the year to 19x, in line with its long-run average, even with the index near an all-time high.
- Aggregate capex growth for AA-rated issuers reached 65% year-over-year in Q2, the 10th consecutive quarter above 35%, pushing hyperscalers to raise debt and equity.
- AI-related borrowers drove 44% of the $135bn in US convertible bond issuance year to date, while Goldman’s credit team lifted its full-year US IG gross issuance forecast by $200bn to $2.3tn.
- US equities have been the weakest major region since 2025, a reversal of the post-financial-crisis trend, as earnings improve elsewhere and the US de-rates.
What the “Competition for Capital” Report Says
In a report titled “Global Strategy Views: Competition for Capital,” Goldman Sachs strategists led by Peter Oppenheimer, alongside Sharon Bell, Guillaume Jaisson, Elena Porfidia and Jacinta Feng, argue that two themes dominate investor conversations: the impact of AI and the rise in interest rates. The two are linked, the report states, because demand for capital is rising in both the private and public sectors. Private-sector capex to fund AI infrastructure has eaten into free cash flow and forced companies to raise more debt and equity, while government borrowing needs have grown as priorities shift towards critical infrastructure, energy security and defence.
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