AI capex peaks, global equity earnings shift gears! Goldman Sachs outlines three major themes for 2027.

Goldman Sachs Portfolio Strategy Research notes that as the AI investment boom peaks, global equity earnings growth is expected to halve or more in 2027; however, recent valuation de-rating has created a rather attractive entry point for long-duration tech growth stocks. 2026: A Rare "Year of Broad Gains" 2026 delivered a rare broad-based rally across regions, reversing more than a decade of sustained US outperformance. Strong corporate earnings drove markets higher everywhere, powered by three forces: solid tech sector profits, rising oil prices lifting the commodities sector, and the spillover effects of the AI capex boomwhich boosted asset-heavy, low-obsolescence industries such as industrials. But this momentum is fading fast. Goldman Sachs' top-down estimates show that earnings growth in all major markets will halve or more in 2027: S&P 500 EPS growth will slow from 32% to 16%, Europe from 24% to 8%, Japan from 22% to 13%, and MSCI Asia Pacific ex-Japan from 77% to 30%. The Root of the Slowdown: Hyperscaler Capex Peaks At the core of the earnings deceleration is peak capex at hyperscalerstheir contribution to S&P 500 EPS growth is expected to fall from 12 percentage points in 2026 to 9 percentage points in 2027. Meanwhile, rising depreciation expenses and elevated borrowing costs are squeezing margins. Goldman Sachs notes that recent price action has already reflected a large portion of this slowdown. Global equity valuations have broadly pulled back, with P/E ratios now near their 35-year average levels. US large-cap hyperscalers trade at a forward P/E of about 19.7x, cheaper than traditional defensive sectors such as consumer staples, while their balance sheets remain healthynet debt-to-equity ratios are far below the overall market level. Regional Allocation: Overweight US and Japan, Underweight Europe On a risk-adjusted basis, Goldman Sachs is overweight the US and Japan, neutral on Asia Pacific ex-Japan and emerging marketsthe latter being more volatile due to the index's heavy concentration in Korean and Taiwanese memory chip stocksand underweight Europe, citing government debt concerns and a dense political calendar. Three Major Investment Themes Goldman Sachs' core recommendations center on three themes: First, growth stocks. These include US hyperscalers, AI monetization beneficiaries, and "power plays"-related namespower demand for AI data centers is becoming a new bottleneck. Second, selective defensives. Such as the healthcare sector, "buyback aristocrats" (companies with sustained large-scale buybacks), and European utilities and telecom operators. Third, rate-sensitive beneficiaries. These include UK real estate and retailerssuch assets would benefit directly if bond yields and oil prices moderate.