Many stocks that were recently caught up in worries about artificial intelligence disruption have actually delivered solid earnings. That is according to analysts at Goldman Sachs.
Over the past 3 months, software stocks have fallen sharply. Some have dropped by double digit percentages. Investors became nervous after new AI models were launched. These tools can now perform tasks that many software companies offer.
The fear quickly spread beyond just software. Investors started to worry that AI could affect many industries. This includes sectors like data analysis, logistics and other business services.
But despite all the concern, a lot of these companies posted strong fourth quarter results. Goldman analysts said many firms even saw positive revisions to their earnings per share estimates for the current year. Sales growth remained healthy. Profit margins also improved.
A weaker US dollar helped as well. It made overseas earnings more valuable when converted back into dollars. At the same time, the US economy stayed resilient. As a result, revenues for companies in the S&P 500 rose by 7% compared to a year earlier in the fourth quarter.
Still, investors are not fully convinced. Goldman said that even with this near term strength, many people are debating the long term risk of AI hurting company profits. The big question is whether AI will eventually replace some traditional business models.
Another concern is the huge amount of money being spent on AI. Tech giants like Meta and Microsoft are planning massive capital investments. Analyst estimates now suggest that US hyperscalers could spend about $660 billion on capital expenditure in 2026. That is 22% and about $120 billion higher than estimates at the start of the recent earnings season.
As spending rises, companies are returning less cash to shareholders. Share buybacks among S&P 500 firms fell by 7% year on year in the fourth quarter. This marks the third straight quarter of flat or weaker buyback activity.
Goldman believes this trend could change investor preferences. If free cash flow becomes harder to find and buybacks remain limited, companies that consistently return cash to shareholders may become more attractive.