Goldman Sachs Mulls Exit From Big Tech Investments

Goldman Sachs thinks the Big Tech golden era is over. 

On Wednesday, an executive from the influential investment bank told Bloomberg that its asset management unit is largely quitting tech while it’s ahead, taking the gains it earned from tech’s bumper profits and repurposing them for new investments — primarily in energy and firms listed in Japan. The news comes just as the Magnificent 7 begins to splinter and stagnate.

Heads Up, Seven Up

The good times, they never last. While the Mag 7 — that’d be Microsoft, Meta, Nvidia, Alphabet, Amazon, Apple, and Tesla — almost single-handedly rocketed the broader S&P 500 to all-time highs last year, 2024 has been less kind. Apple, down nearly 10% year-to-date, and Tesla, down over 30% year-to-date, have been the obvious losers of the bunch, but momentum is beginning to slow for the hottest of the cohort as well. On Tuesday, shares of Nvidia briefly teetered into “correction territory,” after falling more than 10% below a recent all-time high.

The skid comes as the AI hype bubble may be growing a bit too big. One recent study from researchers at Cambridge, Oxford, Google Deepmind, and the University of Tübingen found that as AI models grow, they require exponential amounts of data to achieve just linear downstream performance results — possibly limiting how many deep learning techniques can scale. Meanwhile, many AI firms seem to think the internet is simply too small for their plans, and research institute Epoch warns the industry could run out of high-quality training data on the web by 2026. Last week, The New York Times reported that OpenAI, Meta, and Google have pursued creative, and possibly illegal, strategies for digging up fresh training data, like using YouTube video transcripts or tapping publicly available Google Docs files.

All of which may explain why Goldman sees the present as the perfect time to bow out — at least for now:

• Goldman’s Asset Management arm is now overweight on Japanese equities, which it sees as currently undervalued, and on energy companies, which it sees as a hedge against inflation. The firm remains cautious on rate-sensitive small-cap firms and REITs. 
• S&P 500 oil and gas companies are up some 16% through the year, while tech companies are up just 11%. Trading the Mag 7 as a bloc has been effectively net-neutral so far in 2024.

Dice Roll: Tech’s “risk-reward profile is skewed to the downside,” Alexandra Wilson-Elizondo, Goldman’s co-chief investment officer of multi-asset solutions, told Bloomberg. “While we still believe in being long equities and having them in the portfolio, we think that there are some more attractive opportunities to access.”