Why Goldman Sachs still prefers AI infrastructure to 5% Treasurys

Goldman Sachs still prefers AI infrastructure over long-term Treasurys.

Higher bond yields are channeling more capital into AI.

Concerns about America's debt trajectory are overdone.

Long-term Treasury yields around 5% have made government bonds attractive again, but AI infrastructure still offers a better opportunity, according to a Goldman Sachs executive.

"Personally, I think the asymmetric expression is being long compute," said Anshul Sehgal, Goldman's global co-head of fixed income, currencies, and commodities.

Sehgal said he favors AI infrastructure companies, including neocloud providers, which rent AI computing power, and data centers.

His comments on the bank's "The Markets" podcast, published Friday, came after the Federal Reserve raised interest rates last week and signaled another hike could come later this year.

That has extended a selloff in Treasurys, sending long-term yields to their highest levels in more than two decades.

However, higher rates haven't necessarily undermined the AI boom, Sehgal said.

Instead, higher interest payments have put more money in the hands of savers, who have in turn financed AI infrastructure investment.

Against that backdrop, Sehgal sees more upside in AI infrastructure than long-dated Treasurys. While bond yields could fall modestly from current levels, he said AI investments "can go up multiplicatively."

He also distinguished AI infrastructure from the broader market, saying tighter monetary policy could still weigh on equities outside the AI trade.

"I think long compute just makes a lot of sense to me here," he said. "But does that mean that the broader equity complex should do very well? It's less clear."

Sehgal also argued investors have become too focused on Washington's fiscal deficits.

He argued that a growing share of government spending reflects higher interest payments to investors rather than new spending flowing into the broader economy.

"That does not accrue to labor. That accrues to capital. That accrues to the top decile of wage earners," Sehgal said.

He noted annual deficits have hovered around 6% to 7% of GDP, while nominal GDP has also grown by roughly 6% a year over the past four years, limiting the deterioration in the debt-to-GDP ratio.

"I don't think the sustainability issue is really that credible in the long run," Sehgal said.

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