New York City, USA – March 1, 2011: A cityscape view of the global headquarters of the Goldman Sachs & Co. and the World Financial Center (on the left).
getty
Everyone is hunting for the next AI winner.
The obvious names have already been found: Nvidia, Microsoft, Amazon, the hyperscalers, and the infrastructure providers. The market has spent two years chasing anything with an AI label attached to it, and investors are now burrowing deep into the AI value chain in search of overlooked bargains.
But the interesting opportunities may be many steps further down the chain and non-obvious at first glance.
I’ve been thinking about what happens as AI spending moves from billions to trillions.
The easiest way to understand it is through something mundane. Imagine you’re a capacitor manufacturer. Suddenly, demand doubles because every server, data center, and AI system needs more electronics. Do you immediately build a giant new factory? Probably not. History teaches manufacturers that today’s shortage often becomes tomorrow’s glut. Instead, they run existing capacity harder, raise prices, and harvest margins.
We’ve already seen versions of this elsewhere. Dell didn’t invent AI, but it sells the boxes AI runs on. IBM’s opportunity isn’t AI itself but trust. Governments and large corporations facing complex technology choices often buy reassurance as much as hardware or software. IBM has been selling reassurance for decades. Suddenly, up go these old dogs of yesteryear because who can feed the AI beast at scale? Not some plucky startup. Instead, it will be the established giants.
The same extended logic points to my favorite offbeat beneficiary: Goldman Sachs.
The Goldman Sachs chart: a steady rise
Credit: ADVFN
The AI buildout is becoming one of the largest capital-spending programs in history. Data centers, power infrastructure, semiconductors, transmission networks, and industrial reshoring projects all require staggering amounts of financing.
Someone has to arrange that money.
As hyperscalers and infrastructure developers raise untold billions – and soon trillions – of dollars, investment banks go from being essential to indispensable. Vast amounts of new debt must be structured, syndicated, packaged, and distributed. New equity must be raised. Acquisitions must be financed. Balance sheets must be managed.
AI boom equals investment-bank boom.
Goldman is not an AI company at all. It is a financial infrastructure company sitting at the center of the AI investment cycle, helping to anchor the entire process.
No finance, no AI.
The broader reindustrialization of America only strengthens the case. New factories, energy projects, grid upgrades, and strategic supply chains all require capital. If Washington is serious about rebuilding industrial capacity, vast amounts of new money will need to flow through the financial system.
Historically, investment banks have done exceptionally well during major investment booms. Railways, telecoms, the internet, and private equity all generated enormous fee pools for the firms moving capital from investors to builders.
AI may prove to be an even larger opportunity.
At roughly 17 times earnings and paying a dividend, Goldman does not carry the valuation normally associated with AI-linked stocks. The market largely sees it as a traditional financial institution rather than a participant in the AI buildout. That’s because the market hasn’t looked far enough down the chain to recognize that Wall Street may be as critical to the AI boom as any semiconductor manufacturer.
In the AI era, investment banks like Goldman Sachs will be financing the entire expedition – and, as tradition dictates, making out like bandits.
A 17x P/E and a 1.75% dividend yield. Do you need to know anything more?