Goldman Sachs The 720: Falling oil prices reduce US recession risk, while AI capex remains the cross-market main theme

Overview

This is a Goldman Sachs global research roundup report covering themes across macro, strategy, internet, AI infrastructure, consumer, financials, and energy services. The macro core theme is that falling oil prices and the US-Iran agreement reduce US recession risk, and that the overall path of major central banks is more dovish than market pricing, though uncertainty remains high for front-end Fed rates. At the sector level, the AI investment cycle continues to support demand for US internet, Korean semiconductors, MLCC, and servers; China-related themes, by contrast, show structural divergence with strength in high tech and weakness in real estate and consumption.

Core views

Core views include: first, the US 12-month recession probability has fallen to 15%, and lower oil prices improve cross-asset risk appetite; second, the AI capex cycle is still in its early stages, with both enterprise and consumer adoption driving growth for US internet, cloud platforms, and spatial computing-related companies; third, China's economy may rebound in Q3, but weak domestic demand, delayed consumer recovery, and AI-related job substitution risks remain prominent; fourth, South Korea is being lifted by the AI memory cycle, which may significantly improve exports and the current account and extend the central bank's hiking cycle; fifth, global servers, MLCC, and digital efficiency gains in oil services represent structural opportunities, but demand for consumer goods, baijiu, and durables remains differentiated.

Analysis framework

The report uses a multi-theme research roundup approach, integrating macro forecasts, industry fundamentals, company meeting takeaways, holiday sales tracking, asset allocation views, and disclosure frameworks into the same weekly The 720 report. The macro section is based on forecasts for growth, inflation, oil prices, and policy paths; the industry section is based on orders, capacity utilization, ASP, sales volume, retail data, and the capex cycle; the company section provides ratings, target prices, or conclusions from meeting notes.

Methodology notes

• Macro forecastingGlobal macro scenario analysis

  Linkage among growth, inflation, oil prices, central bank policy, and recession probability

  The report updates the US recession probability and cross-asset allocation views through changes in oil prices, the US-Iran agreement, GDP growth, inflation trends, and central bank policy paths.

• Equity factor frameworkGS Factor Profile

  Comparison of growth, financial returns, valuation multiples, and composite percentiles

  Goldman Sachs' factor framework compares stocks with the market and industry peers on growth, financial returns, valuation multiples, and composite metrics to provide investment context for individual stocks.

• M&A probability frameworkM&A Rank

  Three-tier M&A target probability scoring

  Goldman Sachs uses qualitative and quantitative factors to assess the likelihood of a company being acquired, where 1 represents high probability, 2 medium probability, and 3 low probability, and incorporates M&A value into the target price when applicable.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global equities

  Supported by lower recession probability and a calmer cyclical environment

  Strengths

  Falling oil prices, moderate GDP growth, and reduced central bank policy pressure are favorable for risk assets.

  Weaknesses

  It is becoming harder to justify further large upside in valuations.

  Comparison

  Compared with credit assets, the report prefers equities more, maintaining an overweight in equities and an underweight in credit.

  Risks

  Front-end rate uncertainty, a renewed hawkish policy shift, or a rebound in oil prices could weaken risk appetite.

• US internet and AI platforms

  Major beneficiaries of the AI investment cycle and accelerating consumer adoption

  Strengths

  Enterprise adoption is still early, while consumer adoption is faster, supporting hyperscalers, AI platforms, local commerce, and spatial computing.

  Weaknesses

  AI disruption may also change the competitive landscape and compress some business models.

  Comparison

  The report highlights DoorDash, Uber, Netflix, Meta, Amazon, Spotify, and Alphabet as having attractive risk-reward.

  Risks

  AI investment returns coming in below expectations, weakening consumer demand, or rising regulatory pressure.

• Korean semiconductors and macro assets

  A stronger AI memory cycle drives upward revisions to exports, the current account, and GDP forecasts

  Strengths

  Total exports could exceed US$1 trillion, and the current account surplus could reach 15% of GDP.

  Weaknesses

  The semiconductor upcycle is transmitting unevenly to domestic demand, while non-tech exports, retail sales, and overall consumption remain weak.

  Comparison

  Compared with China's domestic demand, Korea's external demand and AI supply chain are stronger.

  Risks

  A downturn in the memory cycle, inflation driven by exchange rates and import prices, and a longer-than-expected central bank hiking cycle.

• China consumer, baijiu, and durables

  Reflects weak domestic demand and consumer divergence in China

  Strengths

  Ultra-premium baijiu sales improved year over year, and some leading home appliance companies have protection from overseas growth and shareholder returns.

  Weaknesses

  Traditional business and government demand remain significantly below historical levels, while durables retail sales and air-conditioner shipments are declining.

  Comparison

  High-tech and export sectors are stronger than the real estate and consumer sectors.

  Risks

  Delayed consumer recovery, falling prices, drag from real estate, and AI-related job substitution affecting household income expectations.

• Global servers and AI infrastructure

  AI infrastructure buildout is driving strong growth in the server market

  Strengths

  Demand is jointly supported by hyperscalers, neocloud, and enterprise data center modernization.

  Weaknesses

  In traditional servers, storage may account for more than 60% of bill-of-materials cost, and rising DRAM and NAND prices create cost pressure.

  Comparison

  Accelerated servers are growing faster than traditional servers, but both categories are expected to achieve double-digit growth.

  Risks

  Slower capex, supply chain constraints, excessively fast increases in storage prices, or AI demand below expectations.

• European oil services and deepwater project chain

  AI and digitalization improve project efficiency and the economics of deepwater projects

  Strengths

  Shorter project cycles, higher IRR, and lower breakeven costs benefit TGS, Vallourec, and SLB.

  Weaknesses

  Highly affected by oil prices, project approvals, and capital discipline.

  Comparison

  Compared with traditional cyclical oil service logic, digital efficiency improvements provide structural support.

  Risks

  Oil prices falling too quickly, delayed deepwater project FIDs, or technology-driven savings failing to fully materialize.

Key data

• US 12-month recession probability15%, previously 25%The reduction was due to the US-Iran agreement and a sharp drop in energy prices.
• US GDP growthAbout 2%The report believes growth remains moderate and inflation may decline, so it does not expect the Fed to hike rates.
• China 2026 real GDP forecastFull year 4.7%; Q2 annualized qoq 3.5%; Q3 annualized qoq 5.0%The full-year forecast is unchanged, but domestic demand is growing at only 1%-2%.
• South Korea real GDP forecast2026: 2.7%; 2027: 2.3%The upward revision is driven by a stronger and more persistent AI-driven memory cycle.
• South Korea terminal policy rate forecast3.25%, previously 3.0%Expectations for an AI-driven super surplus extend the Bank of Korea's hiking cycle into 2027.
• Murata rating and target priceBuy; 12-month target price ¥12,600Strong MLCC orders, AI and data center demand, and a recovery in automotive applications are driving earnings improvement.
• Shinhan Financial Group rating and target priceBuy; 12-month target price W114,000An optimistic spread outlook, NIM expansion, and the Value-Up 2.0 plan support the view.
• Initiation of coverage on PNI and NGIPNI Buy, target price A$20.64; NGI Buy, target price A$3.63Positive on the structural growth opportunities of multi-affiliate asset management platforms and alternative assets.
• China baijiu Dragon Boat Festival salesMoutai and Wuliangye sales in most regions rose 10%-20% year over yearThe recovery is mainly concentrated in the ultra-premium category, while premium-mid-tier and mass-market products remain relatively subdued.
• China durables demandMay retail sales down 16% year over year; air conditioner shipments down 15%Preliminary 618 sales were weak, and brands stimulated demand through price cuts.
• ASEAN food inflation shockAn average increase of 2.1 percentage points after 12 months relative to the no-shock baselineOil prices, fertilizer costs, and a potential strong El Niño jointly raise the risk.
• Global server market forecastReaching $1.4 trillion by 2030; five-year CAGR of 38%Accelerated servers grow 45%, while traditional servers grow 13%.
• Digitalization impact on European deepwater projectsCycle shortened from 12 years to 7 years; IRR increases 3.5 percentage points to 19.0%AI and digitalization can reduce breakeven costs by 15%.
• Gold price forecast$4,900/toz by end-2026The forecast was lowered due to weaker rate-sensitive ETF demand.

Impact & implications

In terms of investment implications, falling oil prices and lower recession probability support global equity risk appetite, but the case for further substantial valuation expansion is becoming harder to make. AI remains the clearest cross-industry demand theme, with beneficiaries including US internet platforms, cloud service providers, Korean semiconductors, MLCC, and server hardware; by contrast, China's consumer, baijiu, and durables sectors still need to wait for a clearer recovery in domestic demand. On a cross-asset basis, the report maintains a tactically neutral and 12-month modestly risk-on stance, with overweight equities, neutral bonds, commodities, and cash, and underweight credit.

Risks

• Uncertainty around the Fed's front-end rate path could pressure risk assets if policy turns more hawkish than either the market or Goldman Sachs expects.
• China's domestic demand, real estate, and consumption may recover slowly, weighing on corporate earnings and household confidence.
• AI-related job substitution may further delay the recovery in Chinese household consumption.
• ASEAN food prices face jointly rising risks from oil prices, fertilizers, and El Niño.
• Rising DRAM and NAND prices in the server supply chain could materially increase traditional server bill-of-materials costs.
• Demand divergence in China baijiu and durables is significant, and promotional price cuts may hurt margins.
• If oil prices rise again, US recession probability and inflation pressure may increase once more.

What to watch

• US inflation, employment, FOMC communication, and changes in front-end rate pricing.
• Brent crude prices and their impact on inflation, recession probability, and cross-asset allocation.
• China's Q3 fiscal spending pace, property sales, consumer data, and the sustainability of growth in high-tech industries.
• Korean semiconductor exports, memory prices, the current account, and the Bank of Korea's policy path.
• AI capex, cloud vendor orders, MLCC capacity utilization, and changes in server storage costs.
• China baijiu wholesale prices, post-Dragon Boat Festival sales momentum, and 618 home appliance sales and price competition.
• ASEAN food CPI, oil prices, fertilizer prices, and the intensity of El Niño.