Goldman Sachs: What fundamental change has occurred in the main AI narrative?

AI investment narratives are undergoing a profound structural shift.

According to Wind Trading Desk, Goldman Sachs pointed out in its latest Q1 2026 Americas Internet Industry Earnings Season Review report that market focus on AI has shifted from competition over capital expenditure size to the growing backlog, growth rate changes, and the widening divergence between free cash flow and GAAP operating profit of mega cloud service providers — this shift is reshaping investors’ valuation logic for the entire tech sector.

The report shows that the combined backlog of Google Cloud and Amazon AWS has reached approximately $832 billion, nearly doubling from about $358 billion after Q3 2025 earnings season six months ago, visually illustrating the persistent widening gap between AI demand curves and computing power supply.

Meanwhile, Goldman Sachs has raised its 2027 capital expenditure forecasts for Google, Amazon, and META from about $586 billion to approximately $700 billion, with the continued rise in capital intensity making market expectations for investment returns increasingly urgent.

AI Mainline Shifts from “Burning Money” Debate to “Return” Inquiry

Goldman Sachs explicitly states that the core contradiction in the AI investment narrative has fundamentally changed. Previously, the market discussion centered on whether capital expenditure was excessive, but now investors are more concerned with when and how these expenditures will translate into visible revenue growth and free cash flow.

Looking at specific data, Google has raised its 2026 capital expenditure guidance range from $175-185 billion to $180-190 billion, while META has increased from $115-135 billion to $125-145 billion, both hinting at further significant increases in 2027.

Goldman Sachs believes that capital intensity will remain high over the next few years, with depreciation and amortization continuing to be the core variables investors focus on, dragging down GAAP profits from 2026 onward.

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

Goldman Sachs pointed out that although both mega cloud providers plan to deploy large-scale capital expenditures in 2026, supply of computing power remains constrained by electricity and data center availability, and the supply-demand imbalance is not expected to balance until the second half of 2027 at the earliest.

META Becomes the Biggest Controversy, Google Completes a Reversal

Among the stocks Goldman Sachs has a buy rating on, META has become the most debated target among investors.

Goldman Sachs noted that the core debate around META centers on two points: one is balancing AI strategic ambitions with the continued expansion of capital needs; the other is how META’s platform and product matrix will evolve amid the accelerating development of AI computing scenarios.

Goldman Sachs believes that, aside from uncertainties surrounding non-core AI investments like Reality Labs, META’s core business of social connection, media interaction, advertising, and communication remains fundamentally strong. Its current valuation may be undervalued by the market, similar to the phased underperformance experienced by other large tech companies over the past 12 to 24 months. Goldman Sachs maintains a buy rating on META with a 12-month target price of $830.

In contrast, Google has experienced a significant reversal in investment sentiment. Goldman Sachs pointed out that Google has shifted from being viewed negatively from an AI perspective in mid-2025 to being almost universally optimistic about its AI prospects, covering consumer and enterprise use cases, infrastructure expansion, custom chip solutions, and core application AI transformation. Goldman Sachs maintains a buy rating on Google with a 12-month target price of $450.

Digital Advertising: AI-Enabled Platforms Accelerate Market Share Gains

In the digital advertising sector, overall ad spending in Q1 stabilized, but market segmentation further intensified. Platforms with scaled AI capabilities — including Google and META — saw accelerated ad revenue growth and continued to expand their leading positions in already dominant segments. Response-driven and funnel-bottom ad spending (especially in programmatic and AI-supported systems) continued to prioritize performance over brand advertising, which faced notable uncertainty at the end of Q1 and early Q2 due to geopolitical turbulence.

From individual stock performance, Google (search), META, APP, RDDT, and PINS all reported revenue exceeding expectations. These platforms are accelerating AI tool integration: Google launched Performance Max, META introduced Advantage+, PINS launched Performance+, and APP rolled out Axon 2.0. Goldman Sachs noted that smaller or mid-sized platforms continue to face headwinds, especially those with exposure to relatively weak sectors like consumer goods.

Consumer Sector: Digital Economy Resilience Remains, but Risks Loom in H2

In the digital consumer sector, Q1 earnings season showed a generally positive trend, with demand in e-commerce, online travel, transportation, and delivery performing well. Amazon’s unit growth reached its highest post-pandemic level, with fast growth in essential goods categories outpacing overall growth; UBER delivered strong results in both mobility and delivery segments; DASH maintained steady demand, and its Q2 adjusted EBITDA guidance beat market expectations.

However, Goldman Sachs also cautioned that ongoing pressure on consumer disposable income and whether the digital economy’s disproportionate beneficiaries can sustain this momentum into the second half of 2026 are potential risks investors are increasingly watching. Goldman Sachs said it will closely monitor this issue in its Q2 industry channel research over the next 4 to 6 weeks, with no current reason to adjust existing forecasts.

Investment Return Visibility Becomes the Core Variable in Valuation Restructuring

Goldman Sachs emphasized in the report that most stocks within its coverage have already experienced valuation downgrades since the beginning of the year, with some negative factors already reflected in share prices.

Historically, once positive earnings revisions occur — whether through efficiency gains offsetting costs or a moderation in investment pace — it often signals a boost in investor confidence and can simultaneously lead to upward revisions in earnings forecasts and valuation multiples.

Goldman Sachs remains optimistic about cloud computing, AI-enabled digital advertising, and local commerce (including e-commerce and delivery), believing these areas can offer exposure to compound growth beyond historical trends.

Additionally, Goldman Sachs highlighted that Instacart (CART) and Roblox (RBLX) present relatively attractive risk-reward profiles. Among its key buy-rated stocks, Goldman Sachs maintains buy ratings on 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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