Goldman Sachs argued that the artificial intelligence (AI) trade that Wall Street has been riding for the past 18 months has come under increased scrutiny of late as market participants are starting to show some concerns.
The investment bank, in an updated research note on Wednesday, said investors were skeptical about latter stages of AI adoption, especially regarding monetization and productivity gains.
Previously, Goldman had broken the AI trade into four phases, with the first representing Nvidia (NVDA) – “the clearest near-term AI beneficiary” – and the second focusing on AI infrastructure stocks including semiconductor names, cloud providers, data centers, and other hardware equipment-based companies.
“Investors appear to be confident that companies will continue to spend to build out AI, rewarding Phase 2 stocks involved in that infrastructure stack,” Goldman analyst Ryan Hammond said, adding that the average stock in the second phase had returned 26% YTD.
Meanwhile, the investment bank’s phase 3 focused on companies with the potential to monetize AI by generating incremental revenues, primarily in software and IT services. Phase 4 included companies with the biggest potential earnings boost from widespread AI.
“Stocks with enabled revenues (Phase 3) fell by 19% between February and May,” Hammond said. “Investor skepticism abounds with respect to monetizing AI and productivity gains from AI, hampering the performance of stocks in Phase 3 and Phase 4,” the analyst added.
“Even among investors that are long-term bullish on the potential gains from AI adoption, there appears to be considerable uncertainty about the timeline … We expect this uncertainty will constrain the performance of Phase 4 until convincing applications from Phase 3 begin to be rolled out,” Goldman said.
For investors that are looking to further examine and understand the artificial intelligence trend, they may look towards the below group of exchange-traded funds for additional information:
- GX Artificial Intelligence & Tech ETF (NASDAQ:AIQ)
- GX Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)
- ALPS Disruptive Technologies ETF (DTEC)
- Goldman Sachs Innovate Equity ETF (GINN)
- iShares Robotics and Artificial Intelligence Multisector ETF (NYSEARCA:IRBO)
- First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ:ROBT)
- iShares U.S. Tech Breakthrough Multisector ETF (TECB)
- iShares Exponential Technologies ETF (XT)
- Robo Global Artificial Intelligence ETF (THNQ)
- Roundhill Generative AI & Technology ETF (CHAT)