Growing unease about the potential for artificial intelligence to disrupt long-term corporate growth in the United States is prompting investors to reassess how much of current equity valuations rely on profits far into the future, according to analysts at Goldman Sachs. The shift in focus is particularly pronounced in sectors such as software.
Goldman noted that profits expected beyond the next decade—commonly referred to as terminal value—now make up around 75% of the S&P 500’s total equity value, close to the highest level seen in 25 years. “Today’s share of value in the terminal value is elevated versus history and mirrors other periods where investor long-term growth expectations were increasingly optimistic, including the dotcom boom,” the bank said in a research note.
Investor anxiety around AI-driven disruption has intensified following the rollout of new tools by Anthropic, which automate functions across areas like marketing and data analytics. These developments have sparked concerns about the potential impact on traditional software providers. Reflecting this sentiment, the S&P 500 software and services index has fallen roughly 17% year-to-date, largely due to worries about future revenue growth and profit margins.
Goldman estimates that even a modest shift in long-term growth expectations could have a significant impact on valuations. A one percentage point reduction in assumed long-term growth would lower the combined enterprise value of S&P 500 companies by about 15%. The effect would be more pronounced for high-growth stocks, which could see valuations drop by around 29%, compared with roughly 10% for lower-growth companies. “The value of a high-growth company is especially sensitive to changes in its long-term growth outlook,” Goldman added.
The bank expects the debate over AI disruption—and the uncertainty it creates around long-term valuations—to continue for several quarters. “The threat of disruption will likely represent a persistent overhang until later stages of AI adoption,” analysts said. Goldman also pointed out that during recent earnings calls, only 5% of S&P 500 companies addressed financial expectations beyond five years. “We think more managements should prioritize discussions of the long-term outlook (to investors),” Goldman added.
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