Goldman Sachs Global Equity Outlook: AI Capital Expenditure to Peak Next Year, Earnings Growth to "Decelerate Sharply," Cloud Giants to Become "Defensive Assets"

Title context: Goldman Sachs Global Equity Outlook: AI Capital Expenditure to Peak Next Year, Earnings Growth to "Decelerate Sharply," Cloud Giants to Become "Defensive Assets" Text: As the AI capital expenditure boom approaches its peak, the global equity market's earnings growth engine is slowing down. In its latest 2027 global equity strategy outlook, Goldman Sachs points out that although earnings growth will slow sharply, growth stocks currently being sold off by the marketespecially US hyperscale cloud computing companieshave instead become attractive for positioning. In the latest report titled "Finding Value in Growth," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer notes that valuations of AI-related companies have already corrected significantly, reflecting market concerns over peak AI capital expenditure and slowing returns, which provides investors with an attractive entry point. Cloud giants currently trade at 19.7x forward P/E, not only below the lower bound of their 20-year historical range but also below the 21.0x of the consumer staples sector. Goldman Sachs characterizes them as "relatively defensive" assets. This outlook comes after the Nasdaq 100 just suffered its worst single-day decline since the COVID-19 pandemic, and Nvidia also plunged this week following the shock of news that its founder-CEO is stepping down. Goldman Sachs forecasts a 12-month S&P 500 target of 8,700 points, about 14% upside from current levels, with the TOPIX and Asian markets offering the largest potential gains, while Europe lags the most with expected returns of only about 6%. 2026: Earnings Carry the Index, Valuations Cool Down The core judgment from Oppenheimer's team is that 2026 has three key words: diversification works, earnings bear the main upside driver, and valuation de-rating occurs across all markets. Over the past 12 months, the pattern of sustained US equity outperformance from 2009 to 2025 has partially reversed, with total returns across regions becoming relatively close. But broken down, the underlying drivers are not the same. In Asia ex-Japan and emerging markets, 12-month forward EPS contributed about 70%, while valuation compression dragged by more than 50%. Earnings growth comes mainly from three sources: the tech sector continues to compound; rising oil prices boost earnings for commodity producers; and the spillover effects of the tech capex boom have driven the HALO industries"heavy assets, low obsolescence"such as industrials. At the same time, valuations have not continued to expand. The S&P 500 has fallen from near the 100th percentile of its 20-year range to 18.5x P/E; MSCI AC World currently trades at 15.6x forward P/E with a PEG of 1.1, close to its 35-year average. This is also the starting point for subsequent allocation judgments: the index is not cheap enough to crisis levels, but compared with the previous high-valuation phase, the risk-reward ratio has changed. For 12-month targets, the S&P 500 target is 8,700 points, implying 14% upside. By region, the TOPIX and Asia have the largest upside, while Europe lags relatively at only 6%. Earnings "Great Halving": AI Capex Begins to Recede, Depreciation Pressure Comes to the Table Goldman Sachs warns that in 2027, earnings growth will slow markedly in almost all major markets. Specifically, S&P 500 earnings growth is expected to fall from 36% to 11%; STOXX Europe 600 from 18% to 7%; TOPIX from 24% to 9%; Asia from nearly 80% to less than 30%. This is the so-called "great halving" of earnings growth. The core reason is the slowdown in capex growth at hyperscale cloud service providers, while depreciation from prior investment begins to show up. Goldman Sachs estimates show that cloud giants' capex contributed 12 percentage points to S&P 500 EPS growth this year, up from 5 percentage points in 2025 and 2 percentage points in 2024; but by 2027, this contribution will fall to 9 percentage points; by 2028, it will turn into a 5-percentage-point drag. Sector-level cooling is also underway. Information technology earnings growth will fall from nearly 90% to 45%; Communication services will turn from 34% growth to a 5% decline; The energy sector, which saw 99% earnings growth this year amid the Iran war, is expected to contract about 10% afterward; Materials will slow from 45% to 12%. The only sector expected to accelerate is health care, but that sector has already undergone a valuation re-rating. This means that the "shovel sellers" that benefited from the AI capex wavechips, industrials, energy equipment, etc.will begin to face slowing growth. Meanwhile, the "buyers" of capex, namely US cloud giants, have instead been reclassified into a relatively defensive framework because their valuations have already fallen. Value Hidden Within Growth: Cloud Giants Trade Below Consumer Staples Goldman Sachs believes that AI-related companies have already undergone a significant valuation de-rating, reflecting market concerns over peak AI capex and slowing investment returns. But it is precisely this decline that has opened a new allocation window. Recently, value stocks have clearly outperformed growth stocks across regions, with the valuation gap between value and growth compressing from over 100% at the 2021 peak to about 45% to 50%. At the same time, the value factor is near the 90th percentile of its 20-year range and, based on historical relative relationships, has become more expensive than growth. The global tech sector is at the 20th percentile of its 20-year range, with its P/E close to that of the value factor. The most critical pricing signal appears in US cloud giants: these companies currently trade at 19.7x forward P/E, below their 20-year range and below the 21.0x of the consumer staples sector. The valuation premium of the top five US stocks relative to the other 495 has also nearly converged, already different from the extreme states at the 2000 or 2021 peaks. This is the basis for "cloud giants becoming defensive growth assets": valuations have come down, balance sheets remain relatively healthy, and revenue sources are more diversified. The net debt/equity ratio of the developed-market tech industry is in the single digits, versus about 50% for the overall market. Chips, Memory and Hardware: Greater Upside Elasticity, Greater Volatility The report points out that the opportunities with the most "high-risk, high-reward" characteristics are concentrated in strongly cyclical growth sectors such as semiconductors, memory and hardware. Goldman Sachs Asia strategists estimate that current share prices in Korea's memory sector imply a 70% downward revision to 2027 consensus earnings, which Goldman Sachs considers "seemingly too pessimistic," because disclosures from relevant companies show their DRAM and HBM products are sold out through 2029. The sector currently trades at 0.7x 2028 book value, a level Goldman Sachs notes "historically signals strong future returns." However, Goldman Sachs simultaneously maintains a neutral rating on Asian markets. The reason is concentration risk: Korea and Taiwan together account for about 50% of the MSCI Emerging Markets Index, with the information technology sector weighting above 40%, and the three "AI core stocks"TSMC, Samsung and SK Hynixalone accounting for about 30%. This has widened the P/E discount of emerging markets relative to developed markets to about 50%, the widest since at least 2010. Goldman Sachs forecasts 17% US dollar price returns for Asia (MXAPJ), but maintains a neutral stance after adjusting for volatility (24.2% annualized volatility). Yields and Oil Prices: Key Assumptions Face Challenges The third pillar of Goldman Sachs' 2027 strategy is the expectation of low oil prices and falling bond yields. Goldman Sachs' commodities team expects Brent crude to fall from about US$100/barrel at end-2026 to US$78/barrel by end-2027, and expects the Fed and ECB to pivot to rate cuts "around end-2027." Goldman Sachs' rate forecasts "remain more dovish than market pricing." However, reality differs markedly from these expectations. The 10-year US Treasury yield is currently at 5.12%, climbing further last Thursday after two consecutive upside CPI surprises; Goldman Sachs' own economists have also just adjusted their forecasts to later rate cuts. On oil, Brent rebounded 3.3% to about US$96 last Thursday after Trump said the US does not need a deal with Iran, and the "normalization" of the Middle East situation remains at the forecast level. On regional allocation, Goldman Sachs ultimately recommends overweight US and Japan, neutral Asia and emerging markets, and underweight Europe. Goldman Sachs' caution on Europe stems from the negative impact of falling oil prices on energy sector earnings, government debt issues, and uncertainty from a dense political calendar. This article is reprinted from Wallstreetcn, edited by GMTEight: Chen Yufeng.