What’s on the Minds of Our CIOs?
CIO Digest: Tipping Points
Each quarter, CIOs from our public investing teams convene to analyze pivotal investment forces and identify emerging opportunities. This digest summarizes key insights from our late-June forum. Our discussions centered on the path for the economy and markets, alongside potential tipping points in agentic AI adoption and the expanding use of stablecoins – which we believe have the potential to reshape industries and the investment backdrop.
Views From the Road
AI on the Fast Track – Shifting Gears from Training to Adoption
Earlier this year, many predicted that the rise of cost-effective Chinese artificial intelligence (AI) models like DeepSeek would challenge US AI dominance and curb AI investment. However, our Fundamental Equity team's recent Silicon Valley trip and Q1 earnings reports reveal a different story: US AI leaders are doubling down, pouring even more resources into the AI race as the tech cycle rolls on. This investment, however, shows significant shifts. Companies are moving from open- to closed-source frontier models, prioritizing AI inference (application) over AI training, and focusing on agentic AI (autonomous agents) rather than generative AI (chatbots). We believe this strategic pivot suggests a maturation of the AI investment theme and opportunity set, with a greater emphasis on practical applications and real-world impact.
Outlook and Views
We anticipate a slowdown in the US economy in the second half of the year, though not a contraction. The US labor market shows signs of moderate deceleration, with downward revisions in payroll data, a narrowing breadth of job gains, continuing claims tracking above seasonal norms, and a decline in the job-finding rate. Europe currently exhibits positive momentum, while China has benefited from front-loading orders ahead of tariffs and supply chain diversification. However, potential weaknesses may arise from tariffs and slower US growth. Despite these challenges, strong labor markets and healthy private sector balance sheets suggest continued global expansion.
Recent US inflation data shows services (including rents) disinflation, and limited tariff pass-through to goods. We expect the tariff impact to become evident in the coming months, though the changes to tariff rates may delay price adjustments as businesses await clarity, and external pressure may deter firms from raising prices. Outside the US, tariffs generally reinforce disinflation. In China, manufacturing overcapacity, weak domestic demand, and demographic headwinds point to continued deflation. Conversely, a domestic upswing and wage growth are driving inflation in Japan.
The Fed is in wait-and-see mode and the path to rate cuts lies through labor market weakness. We anticipate two rate cuts in 2025 (September and December), contingent on rising unemployment and a one-time boost to inflation from tariffs. Outside the US, the tariff shock supports easing paths across smaller DM and EM economies, though easing actions may slow as policy rates approach neutral. Higher rates, wide budget deficits, high debt loads, slowing nominal growth, and demographic aging present headwinds to fiscal sustainability in major economies, potentially generating renewed bond market volatility.
- Tariff impact on inflation, employment, earnings and consumer spending
- Tariff deadlines and trade deals
- Geopolitical tensions and energy prices
- Fiscal perceptions and long-end bond yields
- AI investment and application
For more, access our Asset Management Mid-Year Outlook 2025: A Halftime Reset—Not A Retreat
From a multi-asset standpoint, we are neutral on equities; we see potential upside from US fiscal and deregulation efforts but are mindful of slowing growth and high valuations. Across our fundamental equity portfolios, we see attractive thematic opportunities, especially in AI, where we believe the capex cycle is mid-cycle rather than late-cycle, reflecting a shift from AI model training to AI application. This presents opportunities across industries like software, semiconductors, energy, cooling solutions, and cybersecurity. We continue to believe in geographic diversification, accessing opportunities in Europe and Asia. Additionally, strong fundamentals, attractive valuations, earnings, and potential regulatory relief may lead to a rebound in US small caps after a challenging first half of the year.
From a multi-asset perspective, we are neutral on rates due to the trade-off between downside growth and upside inflation risks. Within fixed income portfolios, divergent central bank paths present opportunities for diversified duration exposures. We are overweight smaller G10 markets like the UK, New Zealand, Canada, and Sweden relative to Japan, where a hotter inflation regime supports further rate hikes. While we maintain a neutral stance on US rates, we believe that a Fed ready to respond to labor market weaknesses will help preserve the diversification benefits of US Treasuries in multi-asset or multi-sector fixed income portfolios, especially in the event of unexpected economic downturns.
We are cautious on corporate credit relative to equities within multi-asset portfolios due to tight spreads. Within fixed income, we prefer securitized sectors and high yield credit for their potential for spread compression and attractive income, supported by solid fundamentals and contained downgrade, default, and delinquency trends. We seek better valuations to add to investment grade credit exposures and focus on earning income from BBB-rated bonds, the bank sector, and steepener exposures. Across emerging markets, we find opportunities in local currency bonds benefiting from monetary easing, US dollar weakness, and stabilized energy prices.
We are neutral on the US dollar due to downward pressure from regional asset allocation diversification and rising hedge ratios on US asset holdings by global investors. However, we believe the dollar can still rally during risk-off episodes, especially if these are driven by developments outside the US. We also expect the dollar to maintain its status as the world's reserve currency, as no other currency matches its scale and liquidity. In our fixed income portfolios, we use currency options to position for potential episodes of dollar upside. Read more in The Dollar's Shifting Landscape: From Dominance to Diversification.
Tipping Points in Focus: Digital Innovation
Despite the hype, AI's impact on company profits and overall productivity remains limited. While a select few leading companies are demonstrating tangible bottom-line benefits, the question remains: when will AI truly deliver on its transformative potential across the broader economy? Drawing on Malcolm Gladwell's "Tipping Point" concept, we believe that a critical mass of adoption is needed before AI's transformative effects become widespread. Like the internet, which gained traction through user-friendly tools and widespread access via PCs and smartphones, AI needs the right context and catalysts to reach its tipping point. However, AI's high development and scaling costs present a unique challenge. This quarter, our CIOs, along with experts from across Goldman Sachs and Goldman Sachs Asset Management, explored potential tipping points for digital innovations like agentic AI and stablecoins. Our core focus is on identifying the catalysts that will unlock economic and investment potential.
Expected capex spend of $1.15tn follows a ~$477bn spend for 2022-2024 sourced from Goldman Sachs Global Investment Research, Company data Americas Technology: Internet Analyzing the Impact of AI on Industry Profit Pools – Part I (Advertising Case Study). As of June 24, 2025. Source for 9.2% Share of US firms: Goldman Sachs Global Investment Research AI Adoption Tracker 2025Q2: AI Adoption Rates Accelerate. As of June 5, 2025. Recent industry surveys indicate that businesses have expanded AI use cases in production, though concerns about data security and adequate infrastructure persist. Source for 99% of stablecoins pegged to USD: Deutsche Bank Future Payments: Stablecoins 2025: Everything you should know in 10 slides. As of May 2025.
Beyond Chatbots: The Rise of Agentic AI
Overview: Agentic AI represents a significant evolution in artificial intelligence, moving beyond chatbots to autonomous agents capable of performing complex tasks. Unlike generative AI, which creates new content such as text, images, and music, agentic AI systems can make decisions, execute actions, and adapt to new situations without human intervention.
Use Cases: Agentic AI has the potential to transform various industries, from coding and finance to healthcare and manufacturing, by streamlining processes and boosting efficiency. While many applications are still in pilot phases, several use cases are already in motion. For instance, developers are actively using AI agents to streamline coding processes. In finance, AI has been deployed for years to process large, unstructured, and complex datasets, including by our Quantitative Investment Strategies (QIS) team. A prominent example is our analysis of sentiment on corporate earnings calls to gauge future prospects, leveraging Natural Language Processing tools to process transcripts and audio recordings efficiently in real-time. Looking ahead, AI agents may serve as members of investment committees, scrutinizing investment decisions and prompting debate. In healthcare, trials are underway to employ AI agents for diagnostics and personalized treatment plans.
Tipping Point Catalysts: The availability of more high-quality data, faster algorithms, cheaper computing power, and improved data processing capabilities have potential to advance Agentic AI development, adoption and ultimately its revenue and economic benefits. The demand for more efficient and personalized solutions also plays a significant role. Network effects are contributing as well; increased adoption leads to more data, which could potentially further enhances AI capabilities. Additionally, there is growing bipartisan support in the US for AI-related legislation, and the Trump Administration's focus on semiconductors in geopolitical negotiations is accelerating the construction of new AI infrastructure and capacity. Lastly, increased mergers and acquisitions activity and consolidation are helping companies build their AI capabilities.
Potential Investment Implications
- Disruptors & Disrupted: Navigating the rise of AI requires identifying both direct and indirect both winners and losers. For example, traditional software companies might face challenges as AI agents take over decision-making processes.
- Compute is King: "Compute" is the processing power of a computer. The more compute, the faster and more complex the operations it can handle. We anticipate strong demand for semiconductors (the components that enable compute) and AI infrastructure (data centers, cooling, energy sources like natural gas and nuclear) to support AI applications.
- Robots Rising: The expansion of AI-powered robots, drones, and autonomous systems will require infrastructure upgrades. This could create investment opportunities in hardware (processors, storage, networking) and the rare earth minerals needed to build them.
- Data Fortress: In the age of AI, companies with high-quality data and strong data security may have a significant advantage. Regardless of whether a company uses open-source or closed-source AI models, the quality of the data used to train and prompt those models will determine the quality of the AI's output and a company’s AI edge.
Spotlight on Stablecoins: The Future of Financial Transactions?
Overview: Stablecoins are digital currencies whose value is linked to perceived stable assets.1 These assets typically include the US dollar, highly liquid reserves such as US Treasuries, or commodities like gold. The primary objectives of stablecoins are to enhance payment efficiency, democratize access to financial services, and promote financial inclusion.2 In certain economies, particularly emerging markets, the adoption of stablecoins may be driven by the need to safeguard against high inflation and economic instability.3
Use Cases: While currently used primarily for trading digital assets, including cryptocurrencies, stablecoin applications are rapidly expanding. Emerging use cases for stablecoins include facilitating cross-border payments and remittances, streamlining treasury operations with 24/7 settlement capabilities that may address certain limitations of traditional payment systems, and enabling business-to-business transactions. Additionally, stablecoins may offer a new method of payment, subject to regulatory developments.4
Tipping Point Catalysts: The prospect of regulatory clarity in the United States, with potential legislation this summer, coupled with endorsements from US President Donald Trump and US Treasury Secretary Scott Bessent, could solidify stablecoin legitimacy. Globally, regulators are increasingly focused on stablecoin-specific legislation addressing reserve transparency, audit standards, and issuer licensing (e.g., the proposed STABLE and GENIUS Acts5 in the US). Technological advancements, such as faster and more efficient blockchain technologies, are also contributing to adoption momentum.
Potential Investment Implications
- Stablecoin Shakeup: Stablecoins have the potential to disrupt traditional financial institutions, including remittance providers, payments firms, and banks. However, they also present opportunities for these institutions to innovate and create improved products and customer experiences.
- Reimaging Commerce: The use of stablecoins for real-time, low-cost global commerce payments and transactions6 has potential to significantly enhance retail sector efficiency. However, regulatory controls may constrain adoption, leading to a gradual and modest disruption to established payment systems like debit and credit cards.
- Dollar Defense? Stablecoins backed by fiat currencies have the potential to create structural demand for the US dollar and US Treasuries, potentially countering any downtrend in the dollar’s value and the broader de-dollarization trend.7 Currently, this demand is small compared to other factors influencing the dollar and de-dollarization trends, such as rising currency hedge ratios among foreign investors and global asset allocation rebalancing towards greater regional diversification. However, it is a trend worth monitoring. For example, Tether, the largest stablecoin by market capitalization, ranks among the top foreign holders of US Treasuries.8
Key challenges, risks and limitations: Regulatory uncertainty may impact the adoption and stability of stablecoins, particularly outside the US. Additionally, stablecoins may deviate from their pegged value due to factors such as market volatility and mismanagement of reserves and collateral.9 Other risks include vulnerability to hacking schemes, which could result in potential losses for users and further hinder adoption.
Source: Deutsche Bank, U.S. Treasury, Tether Q1 2024 attestation report. Treasury data as of February 2025.
This is for educational purposes only. Definitions are not intended to represent any regulatory regime and evolving regulatory landscape may impact current understanding of terminology
1 Source: FCA Crypto: The basics. This is for educational purposes only. Definitions are not intended to represent any regulatory regime and evolving regulatory landscape may impact current understanding of terminology.
2 Source: Goldman Sachs Asset Management Fundamental Equity Research team, Citi Digital Dollars (April 2025), McKinsey: From ripples to waves: The transformational power of tokenizing assets (June 20, 2024), Deutsche Bank Research Future Payments (May 12, 2025).
3 In January 2022, Turkish residents exchanged the Turkish Lira for the Tether stablecoin amid surging inflation and local currency volatility. See: Financial Times Turks flock to cryptocurrencies in search of stability (January 23, 2022). In October 2023, demand for stablecoins in Argentina increased amid political uncertainty and concerns over potential devaluation of the Argentine Peso. See CoinDesk: Argentines Take Refuge in Stablecoins After Economy Minister Resignation (October 30, 2023).
4 For example, Visa is pursuing cross-border stablecoin payments with Bridge in Latin America. Since August 2023, customers in certain regions can pay in stablecoins via Solana Pay on Shopify. Additionally, Gucci has been accepting cryptocurrencies, including stablecoins, in select stores since 2022. Source: Deutsche Bank Research Future Payments, Visa OnChain analytics (May 12, 2025).
5 GENIUS stands for "Guiding and Establishing National Innovation for US Stablecoins".
6 Transactions involve the exchange or transfer of goods, services, or funds between parties. Payments are a specific type of transaction where money is transferred as compensation for goods, services, or to settle a debt. While all payments are transactions, not all transactions are payments.
7 De-dollarisation refers to the process by which countries reduce their reliance on the US dollar in international trade, finance, and foreign exchange reserves. This can involve shifting to other currencies for trade invoicing, financial transactions, and reserve holdings. The motivations for de-dollarisation can include geopolitical tensions, economic sanctions, and a desire to diversify risk and reduce dependency on the US economy.
8 Source: Deutsche Bank Research Future Payments (May 12, 2025).
9 See S&P Global: Stablecoins: A Deep Dive into Valuation and Depegging (September 2023).
