Goldman analyzes foreign sales exposure of U.S. firms

Goldman Sachs' latest analysis reveals S&P 500 companies generated 28% of their 2024 revenues from international markets, consistent with the prior year, with Information Technology and Semiconductors exhibiting the highest foreign exposure at 56% and 67% respectively. The report highlights that a sector-neutral basket of stocks with high international sales exposure returned 11% year-to-date, significantly outperforming its domestic counterpart (+4%), a trend supported by the 7% weakening of the U.S. dollar. This international revenue exposure is also noted to be a reasonable proxy for profit exposure among large U.S. corporations, underscoring the importance of global sales to S&P 500 performance.

Analysis

According to a Goldman Sachs analysis, S&P 500 companies derived 28% of their revenue from foreign markets in 2024, a figure consistent with the previous year. This exposure is highly concentrated in specific sectors, with Information Technology sourcing 56% of its revenue internationally and the Semiconductor and Semiconductor Equipment industry being the most exposed at 67%. In contrast, sectors like Utilities remain almost entirely domestic with only 2% of sales from overseas. This divergence in geographic exposure has had a material impact on performance; Goldman's sector-neutral basket of stocks with high international sales has returned 11% year-to-date, significantly outperforming the 4% gain of its domestic-focused counterpart. This outperformance is directly attributed to the 7% year-to-date weakening of the trade-weighted U.S. dollar, which boosts the value of foreign earnings. The report validates that revenue exposure serves as a reasonable proxy for profit exposure for these large-cap firms, noting that while broader Bureau of Economic Analysis data suggests lower international profit contribution, this is consistent with smaller firms having less foreign exposure.

Key Decisions for Investors

• Given the direct link between the weak U.S. dollar and the 11% year-to-date return of internationally-exposed stocks, investors should closely monitor currency market trends, as a strengthening dollar could reverse this outperformance.
• It is crucial to assess individual portfolio holdings for geographic revenue concentration, particularly within the highly-exposed Information Technology, Materials, and Energy sectors, to understand and manage sensitivity to global macroeconomic shifts and FX volatility.
• Consider employing relative value strategies, such as going long a basket of firms with high international revenue exposure while shorting a basket of domestically-focused firms, to capitalize on the performance divergence driven by currency movements and global growth differentials.