What must earnings answer after the rebound in AI stocks?

  • On 26 October, semiconductor stocks and most large technology stocks rose, as investors increased their exposure to AI infrastructure again. Concerns over the previous month had focused on two questions: whether investment was nearing a peak and whether it could generate sufficient returns.
  • Goldman Sachs believes that further gains require AI-related companies to maintain healthy investment growth while beginning to demonstrate strong returns for themselves and their customers. Expanding capital expenditure alone does not answer the question of investment efficiency.
  • This week, Microsoft and Alphabet will report results on Wednesday evening, followed by Amazon on Thursday evening. The AI computing demand disclosed by the three cloud giants will provide an important window into this investment thesis.

Adoption is still low: why does that create both room for growth and a hurdle?

  • Tracking data for September 2026 cited by Goldman Sachs show that AI adoption among US business establishments stood at 23.8%. This means applications are still at an early stage, and returns on infrastructure investment will need to emerge gradually as adoption broadens among customers.
  • The report sees near-universal adoption as a long-term possibility, provided AI realizes its potential as a general-purpose technology. Low adoption therefore leaves room for expansion, but also means companies must maintain investment and demonstrate returns while demand has yet to become widespread.

Investment is still growing, so why will its boost to the economy peak?

  • Goldman Sachs expects the growth boost from the AI boom to peak between the end of 2026 and early 2027. What is peaking is the incremental contribution to economic growth: AI investment is still increasing rapidly, but over the coming year the size of that increase relative to GDP is expected to slow.
  • At the same time, the boost from the increase in US depreciation deductions last year is fading. Together, the two changes will weigh on capital expenditure growth, with a particularly pronounced effect in the United States.
  • AI also creates a wealth effect through rising share prices. Goldman Sachs estimates that over the past year this channel contributed about 0.4 percentage points to US consumer spending growth, equivalent to 0.25% of GDP. The AI rally therefore also affects the growth support already received by consumer spending.

How will interest rates and employment constrain this growth path?

  • Persistently high energy prices, pressure for interest rates to remain high for longer, and AI investment growth approaching its peak lead Goldman Sachs to see downside risks to its forecast of steady growth. The report also notes that evidence has begun to emerge of reduced labor demand after companies adopt AI, with technology diffusion accompanied by labor substitution.
  • Goldman Sachs expects the Federal Reserve to hold rates steady this week, but another increase remains possible in December as long as inflation remains high. A further increase in March of the following year is a possibility outside its baseline scenario.
  • Its forecast for rate cuts depends on energy and AI prices falling and the tariff shock being gradually absorbed into the year-on-year comparison base. Under this path, rate cuts would not resume until late 2027 or early 2028.