Goldman Sachs Group, Inc. (GS) CEO David Solomon used the company's third-quarter earnings call Tuesday to sketch out where the firm sees growth next, and where it sees trouble. The short version: artificial intelligence, electronic trading and digital finance are opportunities. The financing bill for all that AI is the question mark.
Solomon said the firm's third-quarter trading performance included no unusual factors that would materially affect fourth-quarter expectations.
He also described the shift toward electronic equity trading as a growth opportunity rather than a threat to Goldman's business.
The investment bank is closely watching tokenization, agentic trading, decentralized finance (DeFi) vaults and prediction markets for potential opportunities and risks.
Management believes these technologies could expand Goldman's addressable market by introducing new products, increasing trading activity and attracting more clients.
Warns of Financing Risks As AI Investment Surges
Goldman sees AI infrastructure as a major growth opportunity, with demand for computing capacity outpacing supply despite financing, power, labor and regulatory constraints.
However, Solomon warned that the massive financing needed to sustain the artificial intelligence infrastructure boom could put pressure on borrowing costs and threaten the viability of some projects.
With estimates suggesting U.S. data center investment could exceed $10 trillion through 2032, Solomon cautioned that not every project would attract financing on favorable terms.
As capital requirements grow, higher interest rates could squeeze returns and force developers to rethink investments.
However, he emphasized that demand for computing capacity continues to outstrip supply, supporting further construction and financing activity.
Capital Markets Remain Resilient Amid Rate Uncertainty
Solomon said the 10-year Treasury yield had risen about 75 basis points since early July, but higher rates alone would not derail capital markets activity.
He said sharp rate movements pose a greater risk, while the economy, technology investment and market activity remain resilient.
Goldman described the U.S. economy as solid, supported by corporate earnings growth, 2.2% GDP growth and a resilient labor market.
However, geopolitical tensions and energy disruptions pushed oil prices and bond yields higher, renewing inflation concerns.
Investment Banking Pipeline and Equity Financing
Goldman's investment banking pipeline remains strong despite a modest decline in its backlog. Equity capital markets revenue exceeded five- and 10-year averages, although some IPOs were delayed as expected valuations fell 10%–15%.
Equity financing revenue grew about 3% sequentially in the third quarter, despite some deleveraging. Solomon said the business should benefit over time from economic growth, rising equity market capitalization and technological innovation.
Asia is becoming an increasingly important growth market, particularly in equity execution and financing.
Durable Revenue Streams and Wealth Growth
Goldman said its more durable revenue streams have more than doubled since its 2020 Investor Day, accounting for about 45% of year-to-date revenue.
Strategic investments, stronger client relationships, expense discipline and capital management have supported this progress.
The firm expects continued demand for M&A advice, capital raising, financing and risk management as businesses modernize and pursue higher-return opportunities.
Goldman also raised its alternative-investment fundraising target from $75 billion to $150 billion, supported by institutional and ultra-high-net-worth demand.
Wealth-management organic growth is running well ahead of its 5% target, driven by advisor expansion, investment performance and improved client services.
Earnings Snapshot
The firm reported earnings of $17.01 per share, well above the analyst consensus estimate of $13.08.
Net revenue rose 23% year over year to $18.68 billion, driven by strength in its Global Banking and Markets business.
Goldman's revenue grew at an 11% compound annual rate over the five years since 2022, although Solomon does not expect that pace to continue.
GS Price Action: Goldman Sachs Group shares were up 0.27% at $896.40 at the time of publication on Tuesday, according to market data.