The AI revolution has powered both the S&P 500 (SPX) and the Nasdaq 100 (NDX) higher this year. However, the next phase of its development is uncertain, according to Goldman Sachs managing director Eric Sheridan, who warned that the AI trade is “very nonlinear and volatile in nature” in an interview with Yahoo Finance.
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The first phase of AI focused on infrastructure, explained Sheridan, which led to solid gains for Nvidia (NVDA) and Broadcom (AVGO). Moving forward, AI will drift toward the “application layer,” which centers on how companies will use AI to operate more efficiently.
Challenges Loom for Companies Adopting AI
Sheridan says that this could create issues, as “Enterprises have to operate within strict budget requirements. You also run into some friction on the employee side with respect to how they use AI in their own individual workflows.” In contrast, consumers are more likely to adopt AI tools because they aren’t subject to as many restraints.
Whether AI can result in sustainable earnings growth is still up in the air, although Sheridan noted that companies like Meta Platforms (META) have already experienced an uptick in engagement from AI-powered algorithms.
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