AI looking like a 'winner-take-more' game - Goldman
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In the stock market, there is one new game in town and then there is everything else, according to the head of hedge fund coverage for Goldman Sachs.
Thanks in large part to an AI boost the biggest stocks have almost single-handedly dragged the S&P 500 (SP500) (SPY) (VOO) (IVV) into a technical bull market.
"AI has taken off like a rocket and drawn all kinds of investors in - this is a simple theme that retail traders can easily attach to," Tony Pasquariello wrote in a note. The Goldman Sachs AI Basket is up more than 50% year to date.
"In that context, recall the wisdom of a great tech investor: 'positive earnings surprises occur when revenue and earnings growth are accelerating, when average selling prices are rising, and when gross margin and operating margin are rising,'" Pasquariello said.
Perception "may be reality for many companies at this stage of the A.I.," Goldman tech specialist Pete Callahan, said, but it still feels like Apple (AAPL), Amazon (AMZN) and Meta Platforms (META) are "all searching for their âA.I. break-outâ moment where they 'wow' the market.â
Pasquariello says when it comes to AI he's inclined to a see a "winner-take-more" scenario "where the biggest companies are becoming ever more dominant."
Jim Covello, Goldman Sachs Research's co-head of single name research, noted "the barriers to entry are massive in terms of IP, capital and established industry relationships."
The "investment that companies will need to make to be successful in AI is enormous and there are only a handful of companies that can afford that investment," Covello said. 
"I think itâs reasonably similar to the cloud where Alphabet (GOOG) (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Amazon (AMZN) have become the dominant players because they have the capital in what is also a capital intensive game," he said. 
That's similar for Nvidia (NVDA) and, indeed, all the rest for AI, Pasquariello added.
He provided a chart of the "global AI footrace" with the U.S. in green, China in blue, South Korea in red and the rest of the world in orange.

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