Goldman Sachs warns AI earnings surprises are fading, semiconductor bets overdone

As US companies gear up to report their April-to-June quarterly earnings, Goldman Sachs says the wave of AI-driven earnings surprises that lit up last season is unlikely to repeat itself this time around.

Christian Mueller-Glissmann, Goldman Sachs' head of portfolio strategy and asset allocation research, said in an interview with Bloomberg TV on Wednesday that "the era of large AI-driven earnings surprises appears to be nearing its end." He said strong results from semiconductor and other AI-related companies have likely peaked.

"Companies can still beat consensus estimates this season, but expectations are already very high," Mueller-Glissmann said. "Earnings alone may not be enough to reignite the rally." Goldman Sachs put the consensus earnings growth estimate for S&P 500 companies in the second quarter at 22 percent.

Markets appear to have already priced in this outlook. Micron's share price surged 239 percent last year and another 229 percent this year, but its momentum has stalled of late. Nvidia has fallen roughly 17 percent since hitting an all-time high on May 14, and its forward price-to-earnings ratio — based on projected earnings over the next 12 months — has dropped to 18 times, the lowest since 2019.

Mueller-Glissmann said leveraged positioning in semiconductors "had become somewhat excessive and is now reversing." As for where to look next, he pointed to big tech and hyperscalers, saying they "still hold a favorable position given the significant AI infrastructure they have already built."

Even so, he said "the broader structural trend around AI remains intact." Microsoft, Amazon, Google and Meta plan to invest up to $725 billion in data centers, dedicated semiconductors and networking equipment this year to secure a competitive edge at this inflection point. Goldman Sachs said investors should pay closer attention to company outlooks and management commentary in upcoming earnings releases than to the results themselves.