Goldman Sachs is recognizing opportunities for AI-related financing activities as companies continue to adopt the technology.
“Recently, our board of directors spent a week in Silicon Valley, where we spoke with the CEOs of many of the leading institutions at the cutting edge of technology and AI, and we all left with a sense of optimism about the application of AI tools,” Chief Executive David Solomon said today during the bank’s second-quarter earnings call.
Goldman Sachs expects the “proliferation of AI in the corporate world” to bring significant demand for infrastructure and financing needs for the technology, which “should fuel activity across our broad franchise,” Solomon said.
THE BIG PICTURE: While there is opportunity in AI, research on its applicability and viability is still underway.
Goldman Sachs published “Gen AI: Too much spend, too little return” on June 25, a report in which economists and analysts sound alarms about high AI-related technology spend with little return.
“Given the focus on the architecture of generative AI technology today … truly transformative changes won’t happen quickly and few — if any — will likely occur within the next 10 years,” MIT economics professor Daron Acemoglu says in the report.
The high cost to develop AI is not justified, he said, although the tech will increase U.S. productivity by 0.5% and increase GDP by 0.9%.
And AI investments are in a bubble as big tech is in an AI race due to fear of missing out, Jim Covello, head of global equity research at Goldman Sachs, said in the report.
He added that “bubbles can take a long time to burst” and investors should remain invested in AI companies in the short term.
BY THE NUMBERS: In Q2, Goldman reported:
- Communications and technology spend of $500 million, up 4% year over year;
- Net interest income of $2.2 billion, up 33% YoY; and
- Headcount of 44,300, down 1% YoY.
NOTEWORTHY: Goldman Sachs is inching away from consumer banking and restructuring its operations after selling some of its consumer banking operations, William Zhang, principal consultant at management and technology consultancy firm Capco, previously told BAN.
New York-based Goldman sold its consumer-facing robo-investing business, Marcus Invest, to digital investment adviser Betterment in April for an undisclosed amount.
In 2016, Goldman wanted to expand services to consumer banking, but the macro-economic environment changed, with rates hitting decades high and low liquidity in the market, Zhang said.
“They took a pretty big loss, I think over $3 billion, in the last three or four years in their consumer banking business,” Zhang said. “Goldman along with others, are now reorganizing or restructuring their consolidated business.”
Goldman is “refocusing more on their core business, [like wealth management and deal-making] which they do well,” Zhang said, adding that it will reconsider many of its consumer banking partnerships including its Apple Card and General Motors card.
MARKET REACTION: Goldman Sachs (GS) stock was trading at $49.23, up by 12% at market close on July 15. Goldman Sachs has a market capitalization of $158.7 billion.
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