Long-term US Treasury yields hovering around 5% have made government bonds attractive again, but a senior Goldman Sachs executive argues that AI infrastructure still offers a superior opportunity. "Personally, I think the asymmetric expression here is to be long compute," said Anshul Sehgal, co-head of Goldman Sachs' global fixed income, currency, and commodities division.

Sehgal expressed optimism about AI infrastructure companies, including "neocloud" providers that lease AI computing power and data center operators. He made these remarks on the bank's "The Markets" podcast, released last Friday, following the Federal Reserve's recent rate hike and its signal of a potential additional increase this year. This has extended the sell-off in US Treasuries, pushing long-term yields to their highest levels in over two decades.

However, Sehgal indicated that higher interest rates do not necessarily weaken the AI boom. On the contrary, increased interest payments give savers more money, which in turn fuels investments in AI infrastructure. In this context, he believes AI infrastructure has more upside than long-term Treasuries. He suggested bond yields could drift modestly lower from current levels, while AI investments "can go up multiples."

He also distinguished AI infrastructure from the broader market, noting that tighter monetary policy could still weigh on stocks outside the AI trade. "I think being long compute here makes a lot of sense to me," he said. "But does that mean broader equity indices do extremely well? That's much less clear."

Sehgal further argued that investor concerns about Washington's fiscal deficit are overblown. He pointed out that a growing portion of government spending reflects higher interest payments to investors, rather than new spending flowing into the broader economy. "That money does not go to labor. It goes to capital, it goes to the top decile," he said. He noted that the annual deficit has hovered around 6% to 7% of GDP, while nominal GDP has also grown about 6% annually over the past four years, limiting the deterioration of the debt-to-GDP ratio. "I don't think the sustainability issue is really that credible over the long term," Sehgal concluded.