"Investors aren't blindly buying a vision anymore; they are policing the cash conversion path." - Tony Pasquariello (On the shift in market sentiment toward Big Tech spending) [00:04:15]
"Strategic necessity isn't a blank cheque; the market is starting to demand a 'show me' phase for AI revenues." - Dominic Wilson (Discussing hyperscaler capital expenditure) [00:08:30]
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"The single biggest differentiator for workers in this era will be their ability to reimagine workflows that have been static for decades." - Joshua Schiffrin (On the productivity impact of AI) [00:14:45]
"AI capex today is 0.8% of GDP—historically, tech booms don't peak until they hit 1.5% or higher, suggesting we still have room to run if the utility holds." - Dominic Wilson (Comparing current spending to the Dot-com era) [00:18:20]
"Context is the new frontier. We've moved past 'bigger models' to 'better memory' and agentic reasoning." - Joshua Schiffrin (On the technological shift in 2026) [00:21:10]
2. Executive Summary
The central theme of this discussion is the "Great Re-evaluation" of AI capital expenditure as hyperscalers project record spending for 2026. While infrastructure remains a priority, investor sentiment has shifted from rewarding any AI-related spend to scrutinizing the "cash conversion path" and potential earnings disappointments.
The speakers argue that the market is transitioning from the infrastructure layer (Phase 1) toward platform stocks and productivity beneficiaries (Phases 2 and 3), while monitoring physical bottlenecks—specifically the "Gigawatt Ceiling"—as the primary constraint on growth.
3. Chronological Table of Contents
[00:00:02] - Introduction and February Market Recap
[00:03:45] - The Sentiment Shift: From Infrastructure to ROI
[00:07:20] - Hyperscaler Capex Projections for 2026
[00:11:15] - The "Gigawatt Ceiling": Power and Energy Bottlenecks
[00:15:30] - Macro Implications: Inflation and the Fed's 2026 Path
[00:19:05] - AI Agents and the "Agent-as-a-Service" Economy
[00:22:10] - Closing Thoughts and Tactical Investment Shifts
4. Key Takeaways
Capex Scrutiny: Investors are no longer giving a "blank check" for AI infrastructure; companies like Alphabet have seen sell-offs despite strong results when capex targets (exceeding $175B) were viewed as excessive [00:05:10].
Phase Transition: The "AI Trade" is moving into its third phase, focusing on companies that can use AI to drive labor-saving productivity rather than just those building the chips [00:09:45].
The Power Bottleneck: Digital infrastructure is no longer limited by capital, but by the physical "Gigawatt Ceiling"—the inability of the power grid to meet the 160% surge in demand expected by 2030 [00:12:30].
Context over Scale: In 2026, the focus of AI development has shifted from building larger parameters to improving "model memory" and bespoke context [00:20:45].
Resilient Macro: Despite AI-driven disruption, US GDP remains strong (forecasted at 3.3%), supporting a "higher for longer" stance for the Fed until labor market shifts become more pronounced [00:16:50].
The panel discusses how the market "honeymoon phase" for AI infrastructure has ended. In 2024 and 2025, investors rewarded any increase in capex as a sign of competitive strength. In 2026, this has inverted: massive spending is now viewed as a risk to margins unless accompanied by clear "AI-enabled revenue." This connects to recent sell-offs in hyperscaler stocks where capex growth is outstripping immediate earnings growth.
Dominic Wilson notes that the top 10 companies now represent nearly 40% of the S&P 500 market cap. Hyperscalers are projected to spend $527 billion in 2026. While the numbers are staggering, Wilson points out that at 0.8% of GDP, this is still well below the 1.5% peak of the late-1990s telecom boom, suggesting that if utility is proven, the "bubble" has not yet burst.
Power Infrastructure and the Gigawatt Ceiling [00:11:15]
Joshua Schiffrin highlights that the most pressing bottleneck is no longer GPU availability, but power. Data center vacancy rates are at a record low of 3%. The "Gigawatt Ceiling" refers to the 5–7 year lead times for new power plants and grid upgrades, which may cap the growth of AI deployments regardless of capital availability.
The Evolution of AI: Agents and Services [00:19:05]
The speakers discuss the transition from "apps" to "agents." In the 2026 economy, they expect a shift to "Agent-as-a-Service," where companies charge based on tokens consumed by autonomous multi-agent teams rather than human hours worked. This represents a fundamental shift in business models for the software and services industry.
The Alphabet Sell-off: Used as a case study for why "more is not always better." When Alphabet announced aggressive capex expansion for 2026, the market reacted with a sharp repricing, signaling a shift in the "rules of engagement" for Big Tech [00:05:45].
The Autonomous Travel Agent: Joshua Schiffrin provides a narrative example of an AI agent that doesn't just "find" a flight but rebooks meetings and handles the entire fallout of a cancellation without human intervention [00:19:50].
8. Core Frameworks & Mental Models
The Three Phases of the AI Trade:
Phase 1: Enablers (Nvidia, Semi-conductors).
Phase 2: Infrastructure (Hyperscalers, Power, Data Centers).
Phase 3: Productivity Beneficiaries (Software/Services that reduce labor costs). [00:09:45]
The "Show Me" Framework: A decision-making model now used by institutional investors where valuations are only justified by precisely estimated cash flows from AI, rather than vague strategic necessity [00:04:30].
Agent-as-a-Service Economy: A mental model for the future of work where labor is measured in "tokens consumed" rather than "hours worked" [00:20:15].
9. References & Recommendations
Reports:Why AI Companies May Invest More than $500 Billion in 2026, Ryan Hammond (Goldman Sachs Research).
Reports:What to Expect From AI in 2026, Argenti (Goldman Sachs Insights).
Reports:Powering the AI Era, Goldman Sachs Investment Banking.
People:Ryan Hammond (GS Researcher) – Cited for his framework on the evolution of the AI trade.
Commodities:Copper – Mentioned as a critical "pick and shovel" play for grid expansion [00:13:45].
10. Speakers & Credentials
Tony Pasquariello: Global Head of Hedge Fund Coverage, Goldman Sachs.
Joshua Schiffrin: Chief Strategy Officer and Head of Financial Risk, Global Banking & Markets.
Dominic Wilson: Senior Advisor in the Global Markets Research Group, Goldman Sachs.
11. Actionable Next Steps
Rebalance Toward Phase 3: Identify stocks with high labor costs as a share of sales that are successfully integrating AI automation.
Monitor Utility/Power Stocks: Treat energy and power grid providers as the "new infrastructure" layer, given the 2028-2030 power constraints.
Audit AI "Cash Conversion": For tech holdings, prioritize those providing granular reporting on "AI-enabled revenue" over those simply reporting "AI-related spend."
Jul 16, 2026
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