Episode summary
Why Goldman Says the Hyperscalers Look Cheap Into Earnings Season
Summary
Goldman Sachs is urging investors to buy the recent tech selloff, arguing that the hyperscalers look cheap heading into earnings season, which begins around July 13. Dylan Grice agrees, saying the Hyperscaler Index is down 17% since June 1 and that the group’s stocks have been deflating because investors are tired of enormous capital spending on AI infrastructure without clear near-term returns.
He frames the group’s problem as a “tale of two cities”: earnings keep rising while stock prices fall, because Amazon, Microsoft, Google, Meta and Oracle are pouring money into chips, data centers, models, the application layer and the energy layer. Grice says that divergence has pushed valuations back toward levels seen at last year’s “liberation day” lows and the geopolitical lows earlier this year, which he sees as points where bigger buyers step in.
Grice is most constructive on Microsoft and Meta, saying their consumer and enterprise franchises give them stronger economics and faster monetization potential. He is less enthusiastic about Oracle, which he sees as a slower business with weaker economics. His broader view is that the companies best able to turn AI tools into usable applications will win by moving faster and monetizing customers first.
Key takeaways
- Goldman Sachs says the hyperscalers look cheap after a 17% drop in its tracked index since June 1, according to Dylan Grice.
- Grice argues the stocks are deflating because investors want evidence that massive AI capex will earn a return.
- He says earnings are still climbing even as valuations fall back toward last year’s and this year’s market lows.
- Grice prefers Microsoft and Meta because their dominant consumer and enterprise franchises can monetize AI faster.
- Grice would stay away from Oracle, which he describes as a slower business with weaker economics.
Notable quotes
“Goldman Sachs is saying hyperscalers look good and I actually happen to agree with them”
“You know the hyperscaler index that they track is down 17% since June 1st. So those of you who own Amazon, Microsoft, Google, Meta, Oracle, hyperscalers, you've been feeling pain”
“investors are saying, "Look, you guys are spending a lot of money and it's not clear what the return on that investment looks like”
“These companies are spending a lot of money on cap X capital spending data centers and chips and all the software all the things building up that five layer cake that we talk about for AI”
“the good news is hypers scalar valuations are trading at lows similar to last year's so-called liberation day and also the geopolitical lows we saw earlier this year”
How the episode opens
Good morning. This is Dylan Jove with Behind the Markets. Happy Monday.
Today is Monday, July 6th. I hope you had a wonderful Fourth of July weekend with your family. I hope you didn't eat too much or drink too much beer and you're here and you're ready to go.
You're ready to continue. This is my last week before my vacation. I talked about this for a while, but I'm hitting the road with the fam.
Going to be America's 250th birthday. We are touring. We're going to be driving all around America.
I want to show my kids how beautiful this country is and a lot of the middle parts of the country we don't usually go to. So, I'm really looking forward to that. Anyway, today I'd like to talk about a note out from Goldman Sach.
Goldman Sachs out with a couple of interesting notes lately. This one talks about they're advising investors to capitalize on the recent tech selloff by buying hyperscalers. They're saying hyperscalers look cheap coming into earnings seasons which you know kind of kicks off the 13th I guess.
Yeah, second week. So yeah, kick off the 13th uh the big earnings season. So Goldman Sachs is saying hyperscalers look good and I actually happen to agree with them.
You know the hyperscaler index that they track is down 17% since June 1st. So those of you who own Amazon, Microsoft, Google, Meta, Oracle, hyperscalers, you've been feeling pain. We've all been feeling that bit of pain.
And we've talked about the fundamental problem here. investors are saying, "Look, you guys are spending a lot of money and it's not clear what the return on that investment looks like. There's a lot of fatigue with these people.
I mean, my goodness, everyone's just kind of tired when you think about why these stocks are just they're just like deflating.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- hyperscaler valuations
- ai capex
- earnings season
- cloud and ai infrastructure
- meta advertising monetization
Companies and tickers mentioned
- GS
- AMZN
- MSFT
- GOOGL
- GOOG
- META
- ORCL
- Goldman Sachs
- Amazon
- Microsoft
- Meta
- Oracle
- OpenAI
- Anthropic
Watch the episode
Watch “Why Goldman Says the Hyperscalers Look Cheap Into Earnings Season” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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