"AI bubble talk" is rampant, Goldman Sachs doesn't believe in rumors.

With the soaring valuations of AI-related companies, massive AI investments, and the increasingly closed-loop AI ecosystem, concerns about the AI bubble have reemerged. The fervor of AI investments is unprecedented. Reportedly, the total valuation of the top ten non-profitable AI startups globally has surged nearly $1 trillion in the past 12 months, marking the fastest wealth expansion rate in history. At the same time, they have collectively attracted over $200 billion in venture capital funding this year alone, accounting for two-thirds of the total annual VC investment in the United States. However, almost all of them are operating at a loss. The concerns about the AI bubble have resurfaced stronger than ever, as many companies in the AI sector are seeing significant increases in their valuations, investments in AI construction continue to grow significantly, and the AI ecosystem is becoming more circular with model companies, infrastructure providers, and mega-scale enterprises signing agreements with each other, blurring the boundaries between customers, suppliers, and capacity providers. Against this backdrop of unfolding events and growing concerns, whether the worries about the AI bubble are justified has become a focal point in the market. Recently, major U.S. banks announced record quarterly earnings, with trading activities and receivables hitting new highs, partly driven by the AI frenzy. However, several Wall Street executives have warned that the AI industry may be in the midst of excessive enthusiasm. Meanwhile, Bank of England and IMF Managing Director Kristalina Georgieva have also expressed concerns about the prosperity of U.S. stocks being driven by the AI frenzy. According to the latest fund manager survey by the Bank of America, as AI concept stocks experienced a strong rally this year, the percentage of global fund managers who believe the sector is in a bubble hit a historical high. In this October survey, about 54% of respondents said that tech stocks are currently overvalued; in contrast, just last month, nearly half of the respondents denied concerns about "tech stock overvaluation." At the same time, concerns about overvaluation in global stock markets also reached a peak in this survey. So, are these concerns rational or excessive? After years of optimism and continuous record highs in the stock market, some investors are now expressing concerns about a potential bubble in the U.S. stock market, drawing comparisons to the capital expenditure frenzy during the internet bubble era and its subsequent collapse. Goldman Sachs' team believes that, while there are some concerning factors, they generally believe that the U.S. technology industry has not yet entered a bubble (at least not currently). However, they are more concerned about the significant gap between public market valuations and (higher) private market valuations. Goldman's stock strategist pointed out that while some characteristics of the current period are similar to past bubbles, and the cyclical nature of trading warrants vigilance, public market valuations and market activity levels are still below the peak of the dot-com bubble. He also noted that Mag7 companies continue to generate excess free cash flow, engage in share buybacks, and pay dividends, which were rare during the dot-com bubble period. Therefore, he seems less inclined to label the current situation in the public market as a bubble, even though he acknowledges that "AI may not have become a bubble yet." Venture capital firm Bessemer Venture Partners' partner Byron Deeter also holds a more optimistic view on the boom in AI capital expenditure. However, Redpoint Ventures analyst David Cahn has a different view, believing that it will only be through General Artificial Intelligence (AGI) that the rationale for large-scale data center construction by 2030 can be proven, while still seeing significant opportunities in private AI application companies. And New York University professor Gary Marcus remains skeptical about the technology itself, at least in its current form. Lauren Taylor Wolfe, managing partner at Impactive Capital, pointed out that the AI industry is in a bubble and will eventually burst. She compares the current AI investment frenzy to the late 1990s internet bubble era. Her core concern lies in the severe disconnect between AI investments in the industry and the returns. "Trillions of dollars are being planned to be invested in the AI sector, while the tech giants generate only hundreds of billions of dollars in free cash flow. Who can prove that tens of trillions of dollars in profits can be generated in the next five years? This is simply not feasible, mathematically speaking." Nevertheless, Goldman Sachs believes that the current bull marketespecially the strong performance of tech stocksmainly continues to be driven by fundamental growth, rather than irrational speculation. So, how should investors position themselves? Goldman's conclusion is that opportunities still exist in the technology sector, but diversification is wise. In the tech field, analysts at Goldman believe that stocks benefiting from potential AI disruptions and undervalued growth stories are valuable, seeing opportunities at all levels of AI infrastructure, platforms, and applications. They also believe that investments in leading semiconductor companies remain solid. Cahn from Redpoint Ventures also sees huge opportunities in AI application companies, mainly existing in today's private market, which are "expensive, but have high-quality business models." Deutsche Bank emphasizes that identifying bubbles is almost impossible because there is no consensus on the exact definition of "asset prices significantly exceeding intrinsic value." Historical experience shows that bubbles are not a linear process and typically develop through multiple rounds of ups and downs. Deutsche Bank concludes that the market may remain "irrational" for longer than investors can maintain their solvency. The bank advises investors to adopt a long-term holding strategy to earn the risk premia equity investment requires.