Goldman Sachs 2027 Outlook: AI Capex Peak to Halve Earnings Growth, Cloud Giants Become Defensive

Goldman Sachs 2027 Outlook: AI Capex Peak to Halve Earnings Growth, Cloud Giants Become Defensive

TREE NEWS reports: Goldman Sachs has released its 2027 global equity strategy outlook, predicting a sharp slowdown in earnings growth as the AI capital expenditure boom nears its peak. The report, titled “Finding Value in Growth” and led by Chief Global Equity Strategist Peter Oppenheimer, argues that despite the deceleration, beaten-down growth stocks—particularly US hyperscalers—now offer attractive entry points. The outlook comes on the heels of a brutal selloff in the Nasdaq 100, its worst single-day drop since the pandemic, and a sharp decline in Nvidia shares following the surprise departure of its founder-CEO.

Earnings Growth to Halve as Capex Tailwinds Fade

Goldman Sachs warns that 2027 will see a “great halving” of earnings growth across major markets. S&P 500 earnings growth is forecast to slow from 36% to 11%, the pan-European Stoxx 600 from 18% to 7%, the Topix from 24% to 9%, and Asia from nearly 80% to under 30%. The primary driver is a slowdown in capex growth from hyperscalers, coupled with rising depreciation from prior investments. Goldman estimates that cloud giants’ capex contributed 12 percentage points to S&P 500 EPS growth this year, up from 5 points in 2025 and 2 points in 2024. By 2027, that contribution will fall to 9 points, and by 2028, it will turn into a 5-point drag.

At the sector level, information technology earnings growth will drop from nearly 90% to 45%; communication services will swing from 34% growth to a 5% decline; energy, which saw 99% growth this year amid Iran-war-related oil price spikes, is expected to contract by about 10%; and materials will slow from 45% to 12%. The only sector expected to accelerate is healthcare, though it has already undergone valuation re-rating.

Cloud Giants: From Growth Darlings to Defensive Assets

Goldman Sachs argues that AI-related companies have already suffered a significant valuation de-rating, reflecting concerns over peak AI capex and slowing returns. That decline, however, has created a new allocation window. The firm notes that value stocks have outperformed growth stocks across regions, compressing the valuation gap between value and growth from over 100% at the 2021 peak to about 45-50%. The value factor now sits near the 90th percentile of its 20-year range, making it more expensive than growth on a historical relative basis. Global tech, meanwhile, is at the 20th percentile of its 20-year range, with its P/E roughly in line with the value factor.

The key pricing signal emerges from US cloud giants: they currently trade at 19.7x forward earnings, below their 20-year historical range and below the consumer staples sector’s 21.0x. Goldman Sachs characterizes them as “relatively defensive” assets. The valuation premium of the top five US stocks relative to the remaining 495 has nearly converged, a stark contrast to the extremes of 2000 or 2021. This forms the basis for “cloud giants as defensive growth assets”: valuations have come down, balance sheets remain relatively healthy, and revenue sources are more diversified. Developed-market tech net debt/equity is in the single digits, versus about 50% for the overall market.

Semiconductors, Memory, and Hardware: Higher Upside, Higher Volatility

The most “high-risk, high-reward” opportunities lie in semiconductors, memory, and hardware—strongly cyclical growth sectors. Goldman Sachs’ Asia strategists estimate that South Korean memory stocks currently price in a 70% downward revision to 2027 consensus earnings, which the firm views as “overly pessimistic,” given company disclosures that DRAM and HBM products are sold out through 2029. The sector trades at 0.7x 2028 book value, a level that historically signals strong future returns.

However, Goldman maintains a neutral rating on Asia due to concentration risk: South Korea and Taiwan together account for about 50% of the MSCI Emerging Markets index, with information technology weighting over 40%. Three “AI core” stocks—TSMC, Samsung, and SK Hynix—alone represent roughly 30%. This has widened the emerging markets’ P/E discount to developed markets to about 50%, the widest since at least 2010. Goldman forecasts 17% USD price returns for Asia (MXAPJ) but keeps a neutral stance after adjusting for volatility (24.2% annualized).

Yields and Oil: Key Assumptions Under Challenge

The third pillar of Goldman’s 2027 strategy is an expectation of low oil prices and falling bond yields. The commodities team expects Brent crude to fall from about $100/barrel at end-2026 to $78/barrel by end-2027, and anticipates the Fed and ECB will pivot to rate cuts “around end-2027.” Goldman’s rate forecast remains more dovish than market pricing. However, reality diverges: the 10-year Treasury yield sits at 5.12%, rising further last Thursday after two consecutive upside CPI surprises; Goldman’s own economists have just pushed back their rate-cut expectations. Brent rebounded 3.3% to about $96 last Thursday after Trump said the US does not need a deal with Iran, and Middle East normalization remains a forecast, not a fact.

On regional allocation, Goldman recommends overweight US and Japan, neutral Asia and emerging markets, and underweight Europe. Its caution on Europe stems from the negative impact of lower oil prices on energy sector earnings, government debt issues, and uncertainty from a dense political calendar.

Key Takeaways for Investors

• Earnings deceleration is coming: Prepare for a “great halving” of earnings growth in 2027 as AI capex tailwinds fade and depreciation pressures mount.
• Cloud giants offer defensive growth: US hyperscalers at 19.7x forward P/E are cheaper than consumer staples and have healthy balance sheets—an attractive entry point for long-term investors.
• Semis and memory offer high risk/reward: Asian memory stocks may be oversold, with sold-out capacity through 2029 and historically low valuations.
• Watch bond yields and oil: Goldman’s bullish scenario hinges on falling yields and oil prices, but current levels challenge those assumptions.
• Regional allocation: Overweight US and Japan, neutral Asia/EM, underweight Europe.