Solomon Says AI Financing Demand Outruns Compute Supply
The AI build-out has become the dominant force in capital markets. Demand for compute far exceeds supply, so Solomon expects heavy financing over the next year or two, with Goldman advising on deals for SpaceX, Meta and Anthropic. He cautions that spending will not follow a straight line, and that the constraint on deal size is the cost of capital, not its availability.
Takeaways
- AI financing demand is very robust. In one week Goldman brought together very significant financings for SpaceX and Meta, alongside an announced Anthropic IPO. Solomon said capital markets stayed active through short-run volatility and investors remain focused on AI and compute demand.
- Compute demand far exceeds supply. Solomon said the industry is early in building AI infrastructure and that a straight-line spending path is wrong, since technology super cycles have recalibrations and stops and starts. The next 12 to 24 months should bring robust financing.
- Capital is abundant, its cost is not. Global public equity market capitalisation is about $160tn, so the constraint is not capital. Higher rates and heavier government debt issuance raise the cost of capital, which can change project returns.
- Debt and equity investors want different things. Debt investors are paid not to make mistakes and ask for higher returns when markets turn challenging. Equity investors accept more risk because they are looking for upside.
- Asia holds about a fifth of Goldman revenue. Asia has long run between 15% and 20% of Goldman's global business and is now at the high end of that range. The region and China stay important even as the US keeps economic and innovation pre-eminence.
- Scale is driving consolidation across industries. Solomon said M&A in the US and Europe is shaped by a regulatory environment that allows deals at scale. Scale matters enough that consolidation is spreading across industries, and Goldman has been a big beneficiary.
- Goldman has roughly doubled revenue since 2018. Revenue has gone from about $34-35bn to a street consensus in the low $70bn this year, with compounded revenue growth in the nines. Banking and markets took share, and asset and wealth management supervises over $4tn of assets.
How Solomon splits AI responsibility
- Government sets the rules of the road.
- Technology makers answer for what they make and how they sell it.
- Enterprises answer for how they deploy it.
- Goldman has run AI trading platforms for 20 years with accountable people behind them.
Goldman's own AI rollout