AI Capex Peak Nears: Goldman Sachs Says the Super-Theme Is Becoming a Two-Sided Story

AI Capex Peak Nears: Goldman Sachs Says the Super-Theme Is Becoming a Two-Sided Story

TREE NEWS reports: After a three-year run as the market’s dominant narrative, the AI investment cycle may be approaching an inflection point. In a recent podcast discussion, three senior Goldman Sachs executives—Tony Pasquariello, global head of hedge fund coverage; Josh Schiffrin, global head of risk; and Dominic Wilson, senior advisor in Goldman Sachs Research—argued that the peak rate of growth in AI capital expenditures is close at hand, and that the market’s pricing of AI has shifted from one-sided optimism to a two-sided debate that weighs both upside and downside.

The conversation, recorded on October 29 after a heavy week of Big Tech earnings, also touched on the Federal Reserve path and the macro risk landscape. Wilson said AI has transitioned from a “super-charged theme” to a “more conventional narrative,” with the peak growth rate “probably quite close.”

Why AI Is No Longer a One-Way Bet

Three forces are converging. First, market prices already embed highly optimistic expectations. Second, investment growth is nearing its peak. Third, the credit demand financing this investment wave is beginning to leave its mark on markets. Together, these shift AI from a “faith-based” trade to an “accounting-based” one—investors now need to scrutinize financing conditions, earnings delivery, and interest rates.

Wilson noted that since the “bubble-like peak” in AI-related stocks last June, the firm has worried that pricing across the AI space, especially in infrastructure, requires a fairly optimistic path to justify current levels. The latest earnings season, he said, no longer offers one-sided information. “What you see on the earnings side is a scatter plot,” he said. “Our own forecasts suggest the peak in the investment impulse is probably not far away. Growth will continue, but peak growth is likely quite close.”

He identified three specific cracks: intermittent pressure on credit spreads from Big Tech’s financing needs, lingering questions about monetization paths, and a dispersion in earnings performance rather than the previous uniformity. Importantly, Wilson spoke of peak growth rates, not an absolute decline in capex.

Earnings Support the Index but Don’t Fuel a Breakout

Over the past six months, the S&P 500 and Nasdaq have essentially moved sideways. Pasquariello described the dynamic as a tug-of-war: rates, energy, and credit have been headwinds, while earnings have held the line. This earnings season was “superficially okay,” but forward earnings revisions have fallen far short of the upgrades seen in Q1 and Q2. “Good enough to hold the line, but not enough to add fuel for another breakout,” he said.

He added that full-year earnings growth could ultimately be impressive—perhaps near 30% or higher on his measure—but that number is largely priced in. The market now needs a new catalyst.

Fed: Market Pricing Too Many Hikes

Schiffrin took a dovish read of the Fed’s October meeting and argued that market pricing for further hikes is overdone. His base case: one more hike in December, perhaps one more after that, but “the ultimate number of hikes is likely less than what the market currently expects.” He noted that 60–65 basis points of additional tightening are priced in. “I do think they hike in December, but that may be it. Maybe one more,” he said.

Wilson agreed, noting that part of the earlier rise in rates came from 10-year forward OIS touching around 5.20%, near the peak of the past 20 years’ policy cycles. He also said wobbles in the AI narrative are weighing on yields through growth concerns.

Macro Risk Wall: Middle East Tops the List, Oil Downside Underpriced

Schiffrin flagged Middle East escalation as the biggest near-term growth risk. Conversely, de-escalation and lower oil prices would be positive for both stocks and bonds. Wilson, however, argued that markets have already built a substantial risk premium into oil around Iran geopolitics. If no major escalation occurs in the two to three weeks after the midterms, “the market will find that better than feared—even without substantive progress, the absence of bad news is enough.”

For year-end, Schiffrin’s highest-conviction trade is long global front-end rates across the US, Europe, and UK, on the view that central banks will do less than priced and that any credit-market volatility would push front-end yields lower.

Key Takeaways for Investors

• AI is no longer a one-way bet. The peak in capex growth is near, and investors should focus on financing conditions, monetization, and earnings dispersion rather than broad optimism.
• Earnings are holding the index but not driving it. Without a new catalyst, major indices may continue to trade sideways; leadership could rotate to different stocks.
• The Fed may hike less than priced. Long front-end rates is a high-conviction trade, especially if credit markets wobble.
• Geopolitical risk is two-sided. Middle East escalation is the biggest threat, but the downside in oil may be underpriced if no escalation materializes.