Goldman Sachs Warns AI Investors: Don't Expect Easy Returns

Goldman Sachs strategist Tony Pasquariello has a blunt message for investors in AI stocks: stop demanding precise returns from companies investing in artificial intelligence. Pasquariello points out that hyperscaler capital expenditures are expected to surge from $154 billion in 2023 to over $1.3 trillion by 2028, with Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Oracle (ORCL) making significant commitments.

Pasquariello argues that judging these investments through Return on Invested Capital (ROIC) is overly simplistic. He believes that AI can create value by improving operations, but it also represents defensive spending needed to prevent competitors from disrupting existing businesses.

The strategist compared the current cycle with early cloud adoption and cybersecurity spending, noting that companies could not always calculate an immediate return from those investments, yet refusing to spend risked leaving their businesses less competitive or exposed.