Goldman Sachs: What fundamental changes are happening in the core logic of AI?

The AI investment narrative is undergoing a profound structural transformation.

According to Chase the Wind Trading Desk, Goldman Sachs noted in its latest review report of Q1 2026 Americas Internet Industry earnings season that the market's focus on AI has shifted from a battle over capital expenditure scale to the backlog of revenues, growth rates, and the widening gap between free cash flow and GAAP operating profit at the hyperscale cloud providers—this change is reshaping investors' pricing logic for the entire tech sector.

The report shows that the combined backlog for Google Cloud and Amazon AWS has reached about $832 billion, nearly doubling from approximately $358 billion after the Q3 2025 earnings season six months ago, vividly reflecting the continually expanding gap between the demand curve for AI and the supply of computing power.

Meanwhile, Goldman Sachs has raised its forecast for the combined capital expenditures of Google, Amazon, and META in 2027 from about $586 billion to about $700 billion. The ongoing rise in capital intensity is making the market more urgently demand visibility into the investment return path.

AI Narrative Shifts from "Burning Cash" Debate to "Return" Inquiry

The Goldman Sachs report explicitly points out that the fundamental contradiction at the heart of the AI investment narrative has changed. Previously, the focus of market discussion was whether capital expenditure was excessive. Now, investors are more concerned with: when and how these expenditures will turn into visible revenue growth and free cash flow.

Looking at the specific data, Google raised its 2026 capital expenditure guidance from $175–185 billion to $180–190 billion, while META's guidance went from $115–135 billion up to $125–145 billion; both companies indicate that 2027 capital expenditure will increase significantly further.

Goldman Sachs believes that capital intensity will remain high in the coming years, and the negative impact of depreciation and amortization on GAAP profits will continue to be a core variable for investors to watch in 2026 and beyond.

In the cloud computing sector, Q1 results exceeded expectations. Google Cloud revenue grew 63% year-over-year, backlog nearly doubled quarter-over-quarter to about $460 billion, incremental divisional profit margin was about 57%; AWS revenue grew 28%, backlog increased 93% year-over-year, and operating margin hit a historical high of about 13%.

Goldman Sachs notes that, despite both hyperscale cloud providers planning large-scale capital expenditures in 2026, the supply of computing power remains constrained by electricity and data center availability, with the supply-demand imbalance expected to be resolved no earlier than the second half of 2027.

META Becomes the Most Controversial Focus, Google Achieves Image Turnaround

Among Goldman Sachs’ covered buy-rated stocks, META has become the most hotly debated target for investors.

Goldman Sachs notes the central debate about META focuses on two points: first, the balance between the company's ambitious AI strategy and ongoing capital needs; second, how META’s platform and product matrix will iterate as AI computing use cases evolve rapidly.

Goldman Sachs believes that, ignoring the uncertainty of non-core AI investments like Reality Labs, META’s Family of Apps business anchored in social connections, media interaction, advertising, and communications fundamentals remain strong, and the current valuation may be underestimated by the market, similar to the period-specific underperformance experienced by other large tech companies over the past 12–24 months. Goldman Sachs maintains META's buy rating with a 12-month target price of $830.

In contrast, Google has undergone a notable investment sentiment reversal. Goldman Sachs notes that Google went from being negatively interpreted by the market from an AI perspective in mid-2025, to being almost universally viewed optimistically for its AI prospects—covering consumer and enterprise use cases, technology infrastructure expansion, custom chip solutions, and AI-based transformation of core application businesses. Goldman Sachs maintains Google's buy rating with a 12-month target price of $450.

Digital Advertising: AI-powered Platforms Accelerate Market Share Expansion

In the digital advertising sector, overall ad spend stabilized in Q1, but market differentiation intensified. Platforms with scalable AI capabilities—including Google and META—saw faster growth in ad revenues, further expanding their leading positions in dominated segments. Direct response and lower-funnel ad spend (especially programmatic and AI-driven system-supported segments) continued to be preferred over brand advertising, which faced increased uncertainty from geopolitical instability in late Q1 to early Q2.

As for individual stocks, Google (Search), META, APP, RDDT, and PINS all reported revenue above expectations. Each platform accelerated AI tool integration: Google launched Performance Max, META launched Advantage+, PINS launched Performance+, and APP launched Axon 2.0. Goldman Sachs notes that smaller or sub-scale platforms continue to face headwinds, especially those with large exposure to relatively weak sectors such as consumer goods.

Consumer Segment: Digital Economy Resilience Remains but Risks Loom for H2

In the digital consumer segment, Q1 earnings season was broadly positive, with strong demand trends in e-commerce, online travel, ride-hailing, and delivery sectors. Amazon recorded its highest unit growth since the pandemic, with daily necessities outpacing the overall; UBER achieved strong performance in both ride-hailing and delivery; DASH showed steady demand trends, and its Q2 Adj. EBITDA guidance exceeded market expectations.

However, Goldman Sachs cautions that as pressure on consumer discretionary spending persists, whether the digital economy can continue to disproportionately benefit into the second half of 2026 is becoming a rising concern among investors. Goldman plans to track this issue closely in industry channel surveys over the next 4–6 weeks for Q2, but currently sees no reason to adjust existing forecasts.

Investment Return Visibility Becomes Core Variable in Valuation Reset

Goldman Sachs stresses in the report that most stocks within coverage have seen valuation contraction year-to-date, with some negative factors already reflected in prices.

Based on past experience, a positive revision in expectations for operating profit—whether through increased efficiency offsetting costs or a slower pace of investment—typically boosts investor confidence and simultaneously drives profit forecasts and valuation multiples higher.

Goldman Sachs remains optimistic about cloud computing, AI-powered digital advertising, and local commerce (e-commerce and delivery), believing these areas provide investors with compound growth opportunities beyond historical trends.

Additionally, Goldman Sachs highlights Instacart (CART) and Roblox (RBLX) as relatively attractive on a risk-reward basis. Among major buy-rated targets, Goldman maintains buy ratings for Amazon, Google, META, UBER, DASH, NFLX, and SPOT, with 12-month target prices of $325, $450, $830, $115, $280, $120, and $600 respectively.

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The above content is from Chase the Wind Trading Desk.

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