Goldman Sachs strategist recommends sustained long positions on compute infrastructure, GPU cloud platforms, and data center operators as AI deployment scales.

Despite the Federal Reserve signaling higher interest rates for longer, Goldman Sachs' global co-head of Fixed Income, Currency and Commodities, Anshul Sehgal, sees a silver lining for investors. In Goldman Sachs' "The Markets" podcast recorded September 17 following the Fed's rate hike, Sehgal argued that AI infrastructure could offer compelling opportunities even as rates remain elevated.

He noted that the U.S. equity market is now more leveraged than a year ago. Higher interest income flowing to savers has been reinvested into hyperscalers, neoclouds, and other sectors, increasing overall leverage across the domestic equity market. "I think long-term borrowing costs being in check is a net positive for the equity complex here," he said.

Sehgal positioned AI infrastructure as a far larger opportunity than long-term bonds. He expects long-term Treasury yields to fall to approximately 4.25%, but sees AI infrastructure as offering asymmetric upside, where investments could rise "multiplicatively." He distinguished AI infrastructure from the broader equity market, cautioning that tighter monetary policy could still weigh on sectors outside AI. "To me, it's being long compute, being long Neoclouds, being long data centers," he said.

On U.S. fiscal concerns, Sehgal argued that worries over long-term debt sustainability are overstated. While annual deficit spending suggests debt-to-GDP could rise 6% to 7%, nominal GDP has also grown roughly 6% annually over the past four years, constraining the increase. Debt-to-GDP has worsened by only 1% to 1.5% each year, he noted, making the long-term sustainability risk less credible than the market currently prices in.

Sehgal's optimism contrasts with warnings from other strategists. Chris Wood, Global Head of Equity Strategy at Jefferies, warned of a potential implosion stemming from a shift toward debt financing and funding risks. He expressed concern about the "enormous" amounts hyperscalers are investing in AI, with an estimated trillion dollars expected next year. "My base case there'll be massive loss of capital destruction in the U.S.," he said. Rick Rieder, Chief Investment Officer at BlackRock, warned that the $40 trillion national debt is a mounting fiscal burden and that Federal Reserve rate hikes carry immediate and severe fiscal consequences. However, he noted that 10-year Treasury yields near 5% could provide a favorable environment for fixed-income investors.