Key facts
- Goldman Sachs favors AI infrastructure over 5% Treasurys.
- Anshul Sehgal prefers AI infrastructure companies like neocloud providers and data centers.
- Sehgal believes AI investments can increase multiplicatively, while bond yields may fall modestly.
- He noted that higher interest payments have increased savings, financing AI infrastructure.
- Sehgal argued that US debt sustainability concerns are overblown, with deficits largely reflecting interest payments.
- He stated that annual deficits around 6%-7% of GDP, coupled with nominal GDP growth, limit debt-to-GDP ratio deterioration.
Anshul Sehgal, Goldman Sachs' global co-head of fixed income, currencies, and commodities, believes that AI infrastructure presents a more compelling investment opportunity than long-dated Treasurys, despite current yields hovering around 5%. He highlighted that AI infrastructure companies, including neocloud providers that rent AI computing power and data centers, offer greater potential for multiplicative gains.
Sehgal's comments, made on Goldman's "The Markets" podcast, come in the wake of the Federal Reserve's recent interest rate hike and indications of further increases. While this has led to a selloff in Treasurys and pushed long-term yields to over two-decade highs, Sehgal suggested that higher interest rates have also boosted savings, which in turn are financing AI infrastructure investments. He anticipates that bond yields might decline modestly from their current levels, contrasting this with the significant upside potential he sees in AI investments.
Furthermore, Sehgal distinguished AI infrastructure from the broader equity market, suggesting that tighter monetary policy could still negatively impact equities outside of the AI sector. He also addressed concerns about US fiscal deficits, arguing that they are largely driven by interest payments to capital holders rather than new spending, and that the debt-to-GDP ratio is being managed by nominal GDP growth.