Why Goldman Sachs CEO David Solomon has become an AI believer

Lam Yik/Bloomberg

Goldman Sachs CEO David Solomon expressed optimism Monday about the potential for artificial intelligence to enhance the Wall Street bank's bottom line, both by driving more business and making its operations more efficient.

After a quarter in which profits soared amid a rebound in dealmaking, Solomon said that the volume of such deals could grow in the coming years as AI fuels corporate investment.

"I actually think it's a very, very constructive runway of opportunity set for us with our clients as people reposition their businesses," Solomon said during the New York investment bank's quarterly earnings call. "We're talking about a level of scale that is candidly unprecedented."

The opportunity will play out over the span of years rather than quarters, Solomon said. But Goldman Sachs is already "at the forefront of advising clients" on how they can deploy AI in their operations, he added. Goldman is also playing a role in the evolving debates about AI's economic impacts and regulatory trajectory.

There has recently been concern that some of investors' optimism about AI is the product of hype, similar to the dot-com bubble near the turn of the century. Asked by one analyst to differentiate what's real versus hype, Solomon said he's not a "stock picker" and declined to comment on dot-com comparisons.

But he noted that the AI boom requires infrastructure, including power capabilities and other upgrades that need financing — a revenue opportunity for Goldman as it lends to companies and arranges their debt and equity deals.

Those considerations are "creating an ecosystem of activity in our investment banking and markets business" that the bank has only seen during periods of significant shifts or economic expansions, Solomon said.

This bank governance reform idea failed before. Will now be different?

Large U.S. banks have mostly staved off previous shareholder-backed efforts to ensure their CEOs also don't lead their boards. The issue will soon be put to a vote at JPMorgan Chase, Bank of America and Goldman Sachs.

Goldman is also looking to deploy AI within its own operations, focusing on enhancing employees' productivity "while maintaining a high bar for quality, security and controls," Solomon said. Regulators have been slow to set out an AI framework for the banking industry to follow, as agencies consider the trade-offs between speeding up processes at banks and potentially exposing customers and markets to unknown risks.

Solomon said as with any new technology, a "thoughtful approach and keen eye on risk management will be crucial." The bank wants to find ways to boost productivity, both by modernizing antiquated processes and by using AI to deliver more tools to customers. The goal is to enable "our smartest people to do more with our clients," Solomon said.

The Goldman CEO delivered his cheery outlook on AI after the firm's Wall Street business drove higher-than-expected companywide profits.

Goldman has been somewhat bruised from its now-abandoned push into consumer lending. It sold its home improvement platform GreenSky shortly after buying it, and its push into credit cards has racked up losses.

All along, Solomon and the analysts that cover Goldman have pointed to the strength of the investment banking business that made Goldman a powerhouse. That business reported sluggish results last year as high interest rates and economic uncertainty depressed dealmaking.

But last quarter, net revenues soared in Goldman's global banking & markets division, hitting $9.73 billion, up 15% from the first quarter of 2023 and 53% higher than the fourth quarter of last year. The jump was partly driven by a rebound in debt underwriting deals. Equity underwriting also improved as more companies sought to go public.

Solomon noted that he has continually said the "historically depressed levels of activity wouldn't last forever."

"Where we stand today, it's clear we're in the early stages of a reopening of the capital markets," he said.

Goldman's stock price was up 2.8% in late-afternoon trading.

The Wall Street giant "posted a strong quarter as the company continues to transition away from the consumer banking business" and refocuses on its investment banking strengths, RBC Capital Markets analyst Gerard Cassidy wrote in a note to clients.