Goldman Sachs: 5% yield on US Treasury bonds is attractive, but going long on AI computing power is even better.

According to information from Zhihu Finance APP, the long-term US Treasury yield hovering around 5% has made government bonds attractive again. However, according to a Goldman Sachs executive, AI infrastructure still offers better opportunities. “Personally, I believe the asymmetric play is to go long on computing power,” said Anshul Sehgal, Global Co-Head of Fixed Income, Currency and Commodities at Goldman Sachs.

Sehgal stated that he is bullish on AI infrastructure companies, including “neocloud” service providers that rent out AI computing power as well as data centers. He made these comments during the bank’s podcast “The Markets”, which was released last Friday after the Federal Reserve raised rates and hinted at another possible hike later this year. This extended the sell-off in US Treasuries, pushing long-term yields to their highest level in over twenty years.

However, Sehgal noted that higher interest rates do not necessarily dampen the AI boom. On the contrary, higher interest payments put more money into savers’ hands, which in turn funds AI infrastructure investments.

In this context, Sehgal believes AI infrastructure has more upside potential than long-term Treasury bonds. He said bond yields may moderately pull back from current levels, while AI investments “could multiply several times over.”

He also distinguished AI infrastructure from the broader market, saying that tighter monetary policy could still weigh on stocks outside the AI trade. “For me, going long on computing power makes a lot of sense here,” he said. “But does this mean the broader stock sectors will perform extremely well? That’s much less clear.”

Concerns about US debt are exaggerated

Sehgal also believes investor concerns over Washington’s fiscal deficit are somewhat overblown. He suggested that a growing share of government spending now reflects higher interest payments to investors, rather than new outlays flowing into the broader economy. “That portion doesn’t go to workers. It goes to capital, to the top 10% of income earners,” Sehgal said.

He pointed out that the annual deficit has been hovering at 6% to 7% of GDP, while nominal GDP has also been growing around 6% each year for the past four years. This, he said, limits the deterioration of the debt-to-GDP ratio. “I don’t really believe the sustainability issue is that credible in the long run,” Sehgal said.