Goldman Sachs has published a note examining how the artificial intelligence capital expenditure boom is reshaping the profitability landscape for America's largest companies. The bank's strategists argue that while AI investment promises long-term growth, the near-term effect on S&P 500 return on equity (ROE) is proving negative as spending outpaces revenue gains.
According to the analysis, the S&P 500's ROE has declined from 22.5% in 2022 to an estimated 20.5% this year. The primary culprit is the sharp rise in capital spending, particularly by the 'Magnificent Seven' tech giants, which are ploughing billions into data centres, chips and cloud infrastructure. Goldman estimates that aggregate capex for the index will exceed $1.2 trillion in 2024, a record high.
For UK investors, the implications are significant. Many British pension funds and individual savings accounts (ISAs) hold substantial positions in US equities through tracker funds or active portfolios. A sustained dip in ROE could translate into slower earnings growth and more modest share price appreciation, particularly if AI investments fail to deliver near-term returns. The FTSE 100, by contrast, has seen more stable ROE figures, though its tech weighting is far smaller.
'The market is pricing in a productivity miracle from AI that has yet to materialise in the numbers,' said one London-based equity strategist who follows US markets. 'If ROE continues to slide, investors may need to recalibrate their expectations for US equity returns over the next 12 to 18 months.' The note also highlighted that sectors outside technology, such as industrials and financials, are seeing more modest capex increases and steadier returns.
For UK pension holders, the key risk is that a prolonged capex cycle without commensurate revenue growth could lead to a valuation correction in US stocks. However, Goldman does not forecast a crash; rather, it suggests a period of 'normalisation' as the market digests the spending spree. The bank recommends that investors monitor cash flow trends and margin expansion closely in the coming quarters.