Goldman Sachs: AI Trade Just Getting Started, Selective Market Rotates Away From NVIDIA

Goldman Sachs' Luke Barrs recently made two key points on CNBC about the current state of the AI trade. First, he said that the AI capital spending cycle is just beginning and will likely continue for several years to come, driven by a shift from consumer-led growth to corporate capex-led growth in the US economy. This means that companies are investing heavily in data centers, fabs, power, and networking gear, which will flow directly into supplier revenue.

Barrs also noted that the market has become more selective, with leadership rotating away from names that carried the last leg of the trade. He cited NVIDIA as an example, saying that the company's strong earnings are not necessarily a guarantee of future success in this new environment. Barrs emphasized that companies need to demonstrate positive forward guidance and beat and raise expectations to be rewarded by the market.

He also highlighted the importance of monetization, or turning equipment sales into durable streams of revenue that pay for the equipment. This will be a key variable for the market to focus on in the coming months. Barrs pointed out that companies like NVIDIA have already booked revenue, but others like CoreWeave and Constellation Energy are still spending to earn their returns.