This story is part of our Chief Innovation Officer Forecast series with Gizmodo, a business report from the front lines of the future.
Demand for AI infrastructure from companies and governments will breed new opportunities for the investment bank, Solomon said
This story is part of our Chief Innovation Officer Forecast series with Gizmodo, a business report from the front lines of the future.
While there is a “broad consensus about the transforming potential of AI,” Goldman is already seeing an “enormous appetite” from clients for advising and supporting AI strategies and the potential for continuing work in the field, Solomon said Monday.
“There will be significant demand for AI related infrastructure, and as a result financing, which will be a tailwind to our business,” he said in a call with analysts on Monday morning after the company reported its first quarter earnings.
This will not be a quarter-to-quarter project, Solomon said, but will be part of the investment bank’s focus over the next five to 10 years to serve both companies and governments looking to build up their AI infrastructure. Solomon said the “level of scale” in the AI infrastructure that governments and companies are building is “candidly unprecedented.”
Within the investment bank itself, Solomon said there are “enormous opportunities for productivity gains and also opportunities for efficiency,” given the implementation of AI in its own business practices.
Goldman had a strong first quarter, with the reopening of capital markets giving the investment bank a widespread boost. Net revenues were $14.21 billion for the first quarter of 2024, up 16% from $12.22 billion in the first quarter of 2023, roughly in line with analyst estimates compiled by FactSet. These results were driven by record — or near-record — performances in its investment banking and equities divisions.
Net earnings were up 28% to $4.13 billion, coming in at $11.58 per share, beating Wall Street’s expected $8.73 per share, according to estimates compiled by FactSet. This compares with a profit of $3.23 billion during the same period last year.
“Goldman Sachs reported its strongest quarterly results in two years, aided by a rebound in Investment Banking and reduced earnings drag from Platform Solutions and CRE-related impairments,” said David Fanger, a senior vice president at Moody’s Ratings.
The number of initial public offerings so far in 2024 has also been a promising sign for the capital markets — a key part of Goldman’s success, Solomon said. The “number of large IPOs across geographies” during the first quarter of this year, including Galderma and Reddit $RDDT, are “a strong sign that investors’ appetite for risk is growing” after 10-year lows of activity in 2023, he said.
“Where we stand today, it’s clear we are in the early stages of reopening capital markets,” he added.
Profits were helped by the fact that, despite the surge in revenues, Goldman’s operating expenses grew just 3% year-over-year. The investment bank’s net provisions for litigation and regulatory proceedings were just $23 million for the first quarter of 2024, roughly one-third of what it was a year earlier. Goldman also reduced its headcount by 2% following the sale of home lending firm, GreenSky, last October.
The sale was part and parcel of the bank’s efforts to move away from consumer banking and enhance two of its core offerings: Global Banking & Markets, and Asset & Wealth Management. Although the sale resulted in a $506 million loss for the investment bank in 2023, Solomon said the reopening of capital markets and business opportunities in Goldman’s core areas mark the beginning of a turnaround for the bank.
“This performance was aided by the swift actions we took last year to narrow our strategic focus and play to our core strengths,” Solomon said in the earnings report.
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