Goldman Sachs Releases 10-Year Investment Outlook: Artificial Intelligence and Emerging Markets to Become Core Engines

Goldman Sachs points out that artificial intelligence and emerging markets will define the next decade. In its "Goldman Sachs Decade Global Outlook" report released last Wednesday, the investment bank systematically outlines its market expectations up to 2035. This long-term report aims to complement the forecasts of its economists.

"While cyclical forces will periodically impact markets, we expect the dominant drivers during this period to be structural: trending nominal growth, profitability and margin performance, initial valuations, and the policy environment," Goldman Sachs analysts emphasized in the report. They use a general framework to assess various regions, adjusting for local specificities. The model estimates total returns as the sum of earnings growth, valuation changes, and dividend yields, and tailors assumptions to the drivers and index composition of different markets.

Artificial intelligence has become a defining trend this year, while emerging markets are also under scrutiny amid supply chain volatility, tariffs, and currency fluctuations, prompting investors to diversify their portfolios. Goldman Sachs analysts expect these trends to continue. "Historically, a weaker dollar has often been accompanied by strong performance in non-US markets, adding additional opportunities for global portfolio diversification," they added.

Here is a detailed breakdown of the report's key takeaways:

Despite AI Bubble Concerns, Long-Term Equity Outlook Remains Robust

Goldman Sachs analysts are optimistic about the current trajectory of global equities, despite much discussion surrounding an AI bubble. "We expect global equities to deliver robust long-term returns, despite high valuations," they wrote in the report. The investment bank forecasts an annualized growth rate of 7.7% for global equities, a figure analysts note is "close to the historical median."

They stated that while initial valuations were around 19 times forward earnings, "we assume they will decline slightly over the next decade." The report states that nominal growth, profitability, and shareholder dividends underpin the market's resilience.

A typical characteristic of bubbles is the disconnect between valuations and fundamentals, a dynamic many fund managers and analysts believe AI-related stocks are exhibiting. On the other hand, a strong earnings season has alleviated some concerns and driven further gains in tech stocks.

"Earnings growth remains the primary driver. We expect global earnings (including share buybacks) to grow at a CAGR of approximately 6%. Dividends contribute the remainder of the returns, and we expect valuations to moderately decline from their current highs," Goldman Sachs analysts added.

Emerging Markets to Outperform the US

Emerging markets are expected to continue attracting attention over the next decade, becoming a key driver of returns as they outperform other regions, including the US.

The investment bank forecasts an annualized return of 10.9% for emerging markets, driven by strong earnings per share growth in China and India. Asia excluding Japan follows closely, with an expected growth of 10.3%, boosted by earnings per share and dividend yield. Analysts add that the Nikkei 225 has already risen 27.4% this year, and Japan is expected to return 8.2%.

Other regions, earnings and shareholder returns are likely to drive growth in Europe at 7.1%. The US is expected to see the smallest increase at 6.5%, which Goldman Sachs analysts describe as "entirely driven by earnings and modest dividends."

"We recommend diversification outside the US, with a focus on emerging markets. We expect higher nominal GDP growth and structural reforms to benefit emerging markets, and the long-term benefits of AI should be widespread, not limited to the US tech sector," they added.

Investors are divided on the impact of AI on emerging markets, but Goldman Sachs analysts predict its benefits will be widespread—McKinsey points to an ultimate value of $4.4 trillion for AI. The report states that countries like South Korea, Japan, and China are heavily investing in AI-driven capital expenditures and applications; however, there are “significant differences” between countries/regions.

India is likely to achieve the highest growth, with strong economic fundamentals and a demographic dividend driving its compound annual growth rate (CAGR) to 13%. Goldman Sachs analysts write that South Korea (with a 10% CAGR in earnings per share) “is likely to see earnings growth driven by AI capital expenditures, shareholder reforms, and strategic sectors including defense, nuclear energy, and shipbuilding.”

They state, “China has the potential to achieve 12% growth over the next three years, driven by AI capital expenditures/applications, increased external market share (the globalization theme), and decoupling (reducing excess capacity and corresponding profit margin pressures).”