Goldman Sachs Outlook 2025: AI remains the main theme of the technology industry, with the software and payment sectors worth paying attention to
Goldman Sachs analyst Peter Callahan believes that generative AI will still be the dominant theme in the technology industry in 2025, and the overall performance of Mag7 will exceed the S&P 493. The market will shift its focus from infrastructure to specific use cases and the efficiency improvements brought by AI
At the end of 2024, Goldman Sachs analyst Peter Callahan conducted a comprehensive review of the technology sector and looked ahead to the market prospects for 2025.
In 2024, the Nasdaq 100 index is expected to rise by about 34%, marking the 18th increase in 22 years. Callahan noted that this year's performance of technology stocks showed a clear "broadening" characteristic.
The S&P 500 index and the Russell 2000 Technology Index both rose by 25%. Compared to the Nasdaq 100 index leading by 25-30 percentage points in 2023, the market performance in 2024 is more balanced and healthy.
This year, technology stocks were in a bull market for almost the entire year, with only three months of decline, and only July saw a pullback of more than 10%. Callahan pointed out that the loose macro environment (interest rate cuts, stable economic growth) continues to drive up stocks related to generative AI, including those in the infrastructure layer (Marvell, TSMC, Nvidia, Arista Networks, etc. rose over 75%) and the application layer (AppLovin, Salesforce, Meta, ServiceNow, etc. performed strongly).
2025 Outlook: AI Remains the Main Theme, Software and Payment Industries Worth Watching
Looking ahead to 2025, Callahan believes that generative AI will continue to be the dominant theme in the technology sector.
With the launch of ChatGPT having been over two years ago, the market will shift from focusing on infrastructure to specific use cases and the efficiency improvements brought by AI.
Callahan predicts that the Nasdaq 100 index may achieve "robust" returns again, expected to reach double-digit growth, in line with the median return over the past 20 years. However, high valuations and increased investments in large-cap AI stocks will be key factors to watch.
In terms of specific industries, Callahan noted that selecting the most promising sub-industries has become more challenging. Although the semiconductor industry performed poorly in 2024, its role in generative AI and the macroeconomic environment remains noteworthy. The software industry is also viewed positively due to its cyclical recovery and long-term opportunities. Among large companies, Amazon and Microsoft stand out.
According to the recent CIO survey results released by GIR, global IT spending intentions have significantly improved for the first half of 2025. The survey showed that the overall IT spending index rose to 79.0, an increase of 5 percentage points from the July 2024 survey, and well above the long-term average.
Goldman Sachs expects that by 2025, the overall performance of the Mag7 will exceed the S&P 493 index, although growth will only be 7%, the lowest profit margin in seven years.
Review of Technology Stock Performance in 2024
Goldman's TMT team pointed out that in 2024, some technology stocks performed remarkably, with SOUN rising 912%, APP rising 750%, and MSTR rising 470%. However, companies like CHGG and SEDG performed poorly, with declines of 85% and 84%, respectively.
Tech giants added approximately $5.34 trillion in market value in 2024, a growth that exceeds the total GDP of many countries, demonstrating the immense influence of the technology sector.
Although the number of layoffs in the tech industry in 2024 decreased compared to 2023, market volatility remained evident. The earnings volatility during the third-quarter earnings season reached a 15-year high, indicating that uncertainty about the future still exists in the market.
In 2024, the TMT sector performed exceptionally well, particularly large tech stocks and internet stocks. According to the performance data of sub-industries in the S&P 500 index, the information technology and communication services sectors saw increases of over 40%.
Since the implementation of Trump's policies, most of the gains represented by the GSP24REP index have been retraced. Meanwhile, the Momentum strategy performed excellently over the past year, becoming one of the best-performing years on record.
Top Ten Key Issues for 2025
Goldman listed the top ten key issues for 2025:
- How will the market view the relationship between capital expenditure and the AI boom?
- Will there be a credible "AI upward stack" story in the software industry?
- Can the "scale law" story continue?
- Will we see a broad cyclical upswing in industries?
- How will the autonomous driving market develop?
- Will investors become interested in blockchain and cryptocurrencies again?
- How should we view high-quality stocks that appear somewhat "full" based on traditional valuation frameworks?
- How will macro factors (tariffs, inflation, immigration/labor, geopolitics, etc.) affect the market?
- What are the development trends of large language models?
- What will IT spending look like in 2025?
Important Themes for 2025
Goldman listed the important themes for 2025:
- Generative AI moving towards "upper layers"
- Edge AI
- AI-powered voice technology
- Content creation (and consumption) in the AI era
- The intersection of AI and software layers (friends or foes?)
- Updates on large language models (Llama 4, ChatGPT 5, etc.)
- Tariffs
- Domestic semiconductor ecosystem in China
- TikTok
- Space (and/or satellites)