{"text":[[{"start":6.85,"text":"The writer is chief US equity strategist at Goldman Sachs"}],[{"start":10.95,"text":"Is the AI boom inflating an equity market bubble? While investors have debated this topic for the past few years, the sustained strength of the US equity market in recent months has catalysed a new wave of concern among market participants, exacerbated further by the most recent bout of market volatility, including Friday’s 5 per cent drop in the Nasdaq-100 Index."}],[{"start":33.9,"text":"But the data tells a different story. The US equity market rally this year has been driven by earnings strength, rather than rising valuations or speculative fervour."}],[{"start":44.349999999999994,"text":"Corporate earnings have been exceptionally strong. For the first quarter this year, S&P 500 companies reported earnings per share growth of 18 per cent on a year-on-year basis, excluding some idiosyncratic one-time benefits. Setting aside the megacap technology stocks, the median S&P 500 company reported growth of 14 per cent, making this the strongest quarter in over a decade outside of the 2018 tax cuts and the 2021 Covid reopening period."}],[{"start":72.8,"text":"In addition to strong backward-looking results, forward-looking earnings estimates have been climbing. Since the start of the year, analysts across Wall Street have lifted estimates for S&P 500 earnings in both 2026 and 2027, with upgrades outpacing downgrades in every sector."}],[{"start":91.05,"text":"In fact, earnings estimates have been rising even more quickly than share prices. Year-to-date, the S&P 500 has climbed roughly 10 per cent and forward estimates have risen 15 per cent. As a result, the forward 12-month price-to-earnings ratio has actually declined, from 22 times at the start of the year to 21 times today."}],[{"start":null,"text":"
"}],[{"start":112.44999999999999,"text":"AI investment spending is the principal engine of current corporate earnings strength. Despite a mixed macroeconomic backdrop, earnings have recently been robust across most of the US market. However, the build-out of data centre infrastructure should drive roughly half of S&P 500 earnings growth this year and next. Analysts now forecast that the five largest “hyperscalers” — Alphabet, Amazon, Meta Platforms, Microsoft and Oracle — will spend $755bn on capital investment this year alone, an 83 per cent increase over last year."}],[{"start":148.89999999999998,"text":"In addition to driving the market higher, earnings strength explains the recent outperformance of semiconductor stocks and others most directly benefiting from the AI investment boom. A portfolio of the semiconductor companies, power infrastructure firms and other “picks and shovels” at the heart of this build-out has rallied by 33 per cent this year alongside a 30 per cent increase in forward earnings estimates."}],[{"start":null,"text":""}],[{"start":172.39999999999998,"text":"Ultimately, the critical question is whether the earnings tailwind from AI investment spending will fade before the returns on those investments become visible across corporate America. That transition is not guaranteed. In the meantime, however, the investment boom shows no signs of slowing, with capex estimates having risen continually in each of the past three years and likely to continue rising in the months ahead."}],[{"start":197.14999999999998,"text":"Nonetheless, there are reasons for investors to expect a bumpy path going forward. First, both valuation multiples and the degree of equity market concentration rank at the upper end of the historical distributions. The S&P 500’s 10 largest companies account for 41 per cent of index market capitalisation, the highest share in decades."}],[{"start":219.09999999999997,"text":"Second, the macroeconomic backdrop remains challenging. The oil shock stemming from the closure of the Strait of Hormuz is putting pressure on corporate profit margins, consumer wallets and interest rates."}],[{"start":231.64999999999998,"text":"Third, equity supply is increasing, including a large wave of IPOs likely to crest in coming months. This adds to the potential for market volatility as investors adjust portfolios to incorporate new issues."}],[{"start":245.04999999999998,"text":"These are real risks, and the path ahead for equities is unlikely to be smooth. However, none of today’s risks has yet shown signs of disrupting the earnings momentum that has carried the market higher. And in the face of uncertainty, investors have anchored on near-term earnings."}],[{"start":260.29999999999995,"text":"The result is share prices and earnings that have moved hand in hand. This close relationship stands in sharp contrast to the late 1990s, when investors bid up valuation multiples in expectation of earnings far in the future."}],[{"start":275.4,"text":"There are many outstanding questions about the way AI will affect the global economy in coming years. But today, the market’s focus on earnings simplifies the practical implication for investors: as long as the earnings strength continues, the equity market rally should too."}],[{"start":298.7,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1780987118_6444.mp3"}