While AI investment has been massive, its measured impact on GDP has been minimal so far, largely due to imports. However, Goldman Sachs anticipates a significant productivity boost from AI in the coming years, factoring it into their S&P 500 earnings forecast for the first time.
The top 10 stocks now represent over 40% of the S&P 500's market cap, a level of concentration without historical precedent. Despite this, the underlying market (the "S&P 490") has also performed well, driven by strong, double-digit earnings growth across the board.
The forecast combines strong GDP growth (2.6%) with flat unemployment (4%) and moderating inflation, allowing for Fed rate cuts. This optimistic scenario is predicated on accelerating productivity growth that accommodates economic expansion without overheating the labor market.
Unlike the dot-com bubble, the current market enthusiasm for AI is largely tied to near-term, tangible earnings from infrastructure players like semiconductor companies. Investors are showing discipline by not yet paying for speculative, long-term AI winners, a key difference from the late 1990s.
Keep pulling the thread on Jan Hatzius, Ben Snider.