- Goldman Sachs said in a recent research note that the market is still in the first stages of an AI-driven rally.
- Nvidia is a key player in the early stages, but analysts see further upside in further stages of the AI story.
- The company says AI will eventually expand to benefit other areas, such as computer services.
Goldman Sachs says artificial intelligence is already driving the market into overdrive, but the stock’s driving force shows no signs of drying up.
Rather, the stock is just the first stage of an AI-driven rally that will continue to expand and lift more sectors, the bank said in a post on Tuesday.
“If NVIDIA represents the first phase of AI trade, the second phase will be about other companies helping build AI-related infrastructure,” the company said. “Phase 3 deals with companies incorporating AI into their products to increase revenue, while Phase 4 deals with AI-related productivity improvements that many companies should be able to achieve.”
Here’s a detailed overview of Goldman’s AI timeline:
1st stage
Since ChatGPT ignited the AI race in late 2022, chipmaker Nvidia has jumped into the market. Given that the company’s semiconductors are the basis of this new software, the company has positioned itself as a cornerstone of the technology transition, and during this period it has risen as much as 590%.
”Notably, however, these gains have been driven solely by earnings growth, and the company’s price-to-earnings ratio is barely higher than it was at the beginning of last year, Goldman said.
Analysts support the view that the first phase is not over yet and expect further gains in the future. Recently, Evercore ISI issued his bullish target of $1,540, an 81% increase from Friday’s stock price.
“We believe investors are underestimating the importance of the chip + hardware + software ecosystem that Nvidia has created,” the analysts said.
second stage
Ultimately, Goldman expects other companies to benefit from building AI, but it’s not just limited to semiconductor manufacturers and design companies. Cloud providers, computer equipment manufacturers, and security software developers will all play a role.
This extends to real-world infrastructure, as large data centers are required to run AI, giving a boost to everything from real estate to utilities.
This is also a bet made by legendary investor Steve Eisman, who previously explained that new GPUs require three times as much power as traditional hardware. Accelerating demand for electricity will increase spending to improve the grid and the companies that operate it.
third stage
As generative AI advances, companies that can incorporate the technology into their products will win, Goldman said.
Already, top technology companies are racing to introduce AI-powered services, and investors are rewarding those who do it best. Wedbush Securities’ Dan Ives, for example, has long praised Microsoft’s CoPilot tool, calling it an “iPhone moment” for the company.
The company’s stock price has risen 14.4% this year.
4th phase
With the infrastructure and services established to support AI over the long term, the technology will be free to govern and maximize productivity for companies across the economy, Goldman said.
“Software and services companies, commercial and professional services companies are likely to have the greatest potential for revenue growth from AI because they have relatively high labor costs overall and Because of the high potential for exposure to automation.”
