When AI's 'inevitable slowdown' comes it could tank the S&P 500 by up to 20%, Goldman Sachs says

"Under what Goldman calls "an extreme scenario in which the hyperscalers cut capex back to 2022 levels," the "lost" revenues to AI companies would represent a 30% cut to Goldman's estimate of $1 trillion in total sales growth across the S&P 500 companies next year. In turn, "a reversion of long-term growth estimates back to early 2023 levels would imply 15-20% downside to the current valuation multiple of the S&P 500.""

"AI stocks rose 32% in 2024 and 17% year to date, Goldman says, and "investors increasingly ask us whether current US equity prices are reflective of overly optimistic investor expectations." But tech stocks are currently trading below historic bubble levels, Hammond's team wrote. "The five largest stocks in the index (NVDA, MSFT, AAPL, GOOGL, AMZN) trade at P/E multiple of 28x, compared with 40x at the peak in 2021 and 50x at the peak in the Tech Bubble [of 2000].""

Goldman Sachs models a scenario where reduced hyperscaler capital expenditures substantially curb AI-driven revenue and equity growth. An extreme cut of hyperscaler capex to 2022 levels would subtract roughly 30% from Goldman’s $1 trillion sales growth estimate for S&P 500 firms next year. Reverting long-term growth forecasts to early-2023 levels would imply a 15–20% decline in the S&P 500 valuation multiple. AI stocks have surged in 2024, driving valuation concerns, but the five largest tech names trade at lower P/E multiples than the peaks in 2021 and the 2000 Tech Bubble.

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