Goldman Sachs analysts report that concerns over artificial intelligence disrupting long-term U.S. corporate growth are shifting investor focus to stock valuations. Terminal value, representing profits expected beyond a decade, now constitutes approximately 75% of the S&P 500's equity value, nearing a 25-year peak.
This elevated dependence on future profits mirrors periods like the dot-com boom, according to Goldman. Investor apprehension has intensified following advancements in AI tools that automate tasks, raising questions about pressure on traditional software providers. The S&P 500 software and services index has seen a significant decline this year due to these AI disruption fears.
Goldman estimates that a 1% drop in assumed long-term growth could reduce the combined enterprise value of S&P 500 companies by about 15%. High-growth stocks face a more substantial valuation decrease of roughly 29%. The brokerage anticipates that the debate surrounding AI disruption and its impact on terminal values will continue for several quarters.
Goldman suggests that more company managements should prioritize discussing long-term outlooks with investors, as only a small percentage of S&P 500 firms currently discuss financial metrics beyond five years.