AI isn't just a tech play

The year of the $1 trillion stock buyback # # --------------------------------------------------------------- The key takeaways today: - Artificial intelligence is now boosting industrials stocks - Capital Group's Rob Lovelace on the secret to weathering market cycles - How AI will expand the creator economy - S&P 500 stock buybacks may top $1 trillion next year - Briefings Brainteaser: Which country will feel the largest price rise from recent shipping disruptions? Was this newsletter forwarded to you? [Sign up now](. --------------------------------------------------------------- AI optimism is powering industrials stocks too The AI trade goes well beyond tech, according to Amanda Ross, an equity trader with Goldman Sachs Global Banking & Markets. She points out that many of the top-performing industrials stocks are generating investor excitement for their AI ventures. Strikingly, the stocks of industrials companies most exposed to AI have more than doubled since the start of 2023. These include companies that manufacture or cool the data centers that power AI workloads. But a wide array of industrials companies are looking to capitalize on the technology; 32% of the companies in the sector mentioned AI on their fourth-quarter earnings calls. “The next time someone asks you about AI,” Ross says, “you can tell them that it's not just a tech story.” In case you missed it: Read [our previous article]( about AI is poised to begin shifting from "excitement" to "deployment" in 2024 --------------------------------------------------------------- Capital Group's secret to weathering market cycles Rob Lovelace (L) of Capital Group and Betsy Gorton of Goldman Sachs Most mutual fund companies attract assets by promoting “star” portfolio managers. But Capital Group has become one of the world's largest active investment managers, with $2.5 trillion in assets, by embracing a multi-manager system, which has helped the firm weather multiple market cycles. The approach — dubbed the Capital System — emerged from the need for succession planning several decades ago, explains Capital Group's Rob Lovelace on [Goldman Sachs Exchanges: Great Investors](. Lovelace's grandfather founded the firm in 1931. Lovelace himself recently stepped down at the privately held firm as vice chair and president and continues as a portfolio manager. Today, Capital Group's funds are divided into segments often managed by five or six different portfolio managers, each of whom represents a different style or approach. This produces better results and less volatility, as well as less disruption for investors if a fund manager leaves, Lovelace says. The other advantage, he adds, is that more of Capital Group's employees get the chance to manage money, which is a competitive advantage in attracting and keeping talent. “You have to have a culture that doesn't...promote that sort of survival of the fittest, right? Because people are going to do well at different parts of the cycle — you have to celebrate all of it,” Lovelace says. “It actually requires a sort of reverse: being supportive of people that are struggling and maybe calming the egos of those that are doing really well in any key moment. Because that's what we're trying to do: be better over time. And you don't want to lose those critical bear market investors during an extended bull market.” --------------------------------------------------------------- How AI will expand the creator economy The last five years have been a watershed period for content creators everywhere. There has been plenty of innovation from a storytelling perspective, says Oscar Höglund, the CEO of Epidemic Sound, a Stockholm-based music subscription service that aspires to “soundtrack” all the content on the Internet. The advent of artificial intelligence will boost the creator economy even further, Höglund says [in an episode of Goldman Sachs Talks](. New, tailormade AI models are already making the creator economy more efficient. "We're seeing it in how we sign up customers, how we write agreements...how we tag things,” Höglund says in an interview with Clif Marriott, Goldman Sachs Global Banking & Markets co-head of the Technology, Media, and Telecommunications Group in EMEA. Oscar Höglund (R), CEO of Epidemic Sound, and Clif Marriott, Goldman Sachs Global Banking & Markets co-head of Technology, Media, and Telecommunications Group in EMEA This is contingent on access to high-quality data. Epidemic Sound, which provides music to roughly 20% of YouTube videos and reaches 2.5 billion people a day, uses an AI recommendation engine to suggest what kind of track works best with a particular video. The engine improves itself, Höglund says, based on feedback from viewers — “from the billions of signals we get every day.” AI will also drive the expansion of the market overall. “Everyone has a smartphone, but there are still some barriers to creating content because it's been somewhat complicated,” Höglund says. “AI is tearing down these barriers…and democratizing access to creating content.” He envisions a time when a creator can issue instructions to an AI engine – “Make a video, put music on this, do this, no, [do it] faster” – and “suddenly you have something that works." Epidemic Sound's bread-and-butter is music, and generative AI models have already started to produce snippets or entire pieces of music, without any human participation. That will help revolutionize the industry, but Höglund also points out that musicians may well become more valued than ever. “If the artificial is in abundance,” he says, “authenticity suddenly has a premium.” --------------------------------------------------------------- S&P 500 stock buybacks will likely exceed $1 trillion in 2025 Companies in the S&P 500 are expected to repurchase stock worth $925 billion in 2024, up from Goldman Sachs Research's previous estimate of $840 billion. The upgraded forecast relies in part on stronger-than-expected growth in earnings and margins, particularly among mega-cap tech companies. (The info tech sector remains the single largest source of repurchases in the S&P 500. The Magnificent 7 accounted for 26% of buybacks in the index in 2023, and fourth-quarter filings show they're currently authorized to repurchase $215 billion in stock, 30% higher than the level authorized at the same time last year.) Signs of an improving economy since the third quarter of 2023 also informed our analysts' forecast upgrade. In 2025, buybacks will likely grow further still, exceeding $1 trillion for the first time, according to our analysts. Some of that will be momentum carried forward from the events of 2024. History suggests the US general election in November will lead to elevated policy uncertainty in the second half of 2024, incentivizing companies to postpone large increases in buybacks until 2025. The anticipated start of the Fed's easing of policy rates in the middle of 2024 should also drive somewhat looser lending conditions by 2025. Taken together, our analysts' model points to 16% growth in S&P 500 share repurchases in 2025. --------------------------------------------------------------- Briefings Brainteaser: Fraught freight Recent shipping disruptions have led to increases in global sea freight rates, but Goldman Sachs Research estimates that these cost increases will raise global prices only by 10 basis points. Which of these countries is expected to feel the largest effect on its core price level? A) Canada B) UK C) US D) Australia [Check the answer here](. --------------------------------------------------------------- Goldman Sachs in the news By clicking on these links, you will redirected to external websites that Goldman Sachs does not own or operate. Goldman Sachs is not responsible for the products, services, or content provided on those sites. Please refer to each external website's terms, privacy and security policies for details. 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