Blissful boom? Bubble set to burst? Or are we merely bovine in our AI adulation?
We all have views on AI, and Goldman Sachs is the latest to share one. The company says the AI boom is still in its early stages, despite growing market concerns that an AI bubble could be forming.
Analysts at the Wall Street bank argue that current investment levels remain small compared with the potential economic payoff.
“The enormous economic value promised by generative AI justifies the current investment in AI infrastructure and overall levels of AI investment appear sustainable as long as companies expect that investment today will generate outsized returns over the long run,” they wrote in a note this week.
Optimism and adoption
Goldman cited two main reasons for its optimism: AI applications are already boosting productivity in certain areas, and realizing those benefits requires significant computing power.
The firm estimates that widespread AI adoption could add $20 trillion to the US economy, including $8 trillion in capital income for companies.
“Generative AI still appears set to deliver a rapid acceleration in task automation that will drive labor cost savings and boost productivity,” the analysts said, projecting a 15% increase in US labor productivity over a decade.
AI investment is modest by historical standards
Even with record spending on chips, servers, and data centers, Goldman says AI investment remains modest compared with past technology revolutions. The firm estimates that U.S. AI-related investment accounts for less than 1% of GDP, far below the 2% to 5% seen during the railroad boom, the 1920s electrification wave, and the late 1990s dot-com era.
Goldman’s analysts said the macroeconomic justification for AI investment remains compelling and they are “less concerned about the dollar amount of AI capex.” They estimate that about $300 billion will be spent annually in 2025, calling it an appropriate level given the long-term returns.
The winners may not be today’s biggest spenders
Still, the analysts acknowledged “valid concerns” about whether the companies investing the most in AI will ultimately benefit, particularly as hardware depreciates quickly. They cautioned that history shows first movers don’t always come out on top. “First movers” in industries like railroads and telecommunications often struggled, with later entrants buying assets cheaply after early overinvestment.
“The current AI market structure provides little clarity into whether today’s AI leaders will be long-run AI winners,” the note said. “First-mover advantages are stronger when complementary assets (e.g., semiconductors) are scarce and production is vertically integrated — suggesting that today’s leaders may outperform — but weaker in periods of rapid technological change like today.”
Many early adopters are also spreading their bets by using multiple AI models instead of committing to a single platform, potentially weakening the advantages of incumbents.
The analysts added that as long as productivity gains and model improvements continue, companies will likely keep investing in AI.
“So while investment should eventually moderate as the AI investment cycle moves beyond the build phase and declining hardware costs dominate, the technological backdrop still looks supportive for continued AI investment,” they wrote.
Goldman’s report comes amid a broader debate over whether AI has fueled another speculative tech bubble.
Last week, strategists at Morgan Stanley and Goldman Sachs argued that AI stock valuations remain justified when measured against earnings growth, cash flow, and profit margins.
Arguments about AI will happen all the time. The White House says Anthropic is fearmongering. Anthropic says Washington’s asleep at the wheel.
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