Goldman Sachs: AI Momentum Cracks, Storage and Data Centers Shine, Banks and Hard Assets Emerge as New Favorites
TREE NEWS reports: In a week that rattled markets, Goldman Sachs has issued a stark warning about the fragility of AI-driven momentum trades, while simultaneously identifying fresh opportunities in overlooked sectors. The bank’s trading desk, led by Natasha Tiwana, characterized the recent selloff as a classic ‘deleveraging event,’ catching many investors off guard who had assumed the July correction was a thing of the past. The Goldman Sachs High Beta Momentum Portfolio (GSPRHIMO) tumbled 12% this week, and its AI hedge portfolio lost 10% over five days, signaling a sharp unwind of crowded trades.
What Happened: The AI Trade Under Pressure
Goldman notes that the current momentum breakdown mirrors the underlying dynamics seen in July. Although leverage in the AI sector has receded from extreme highs, inertia-driven capital continues to fuel indiscriminate and rapid ‘buy-the-dip’ behavior. The bank believes that this position clearing, combined with still-strong AI fundamentals, sets a healthier stage for risk-taking in September. Meanwhile, the narrative within AI is shifting: as computing costs decline, the market’s focus is moving from ‘who wins the capex race’ to ‘who truly benefits from widespread AI adoption.’
Market Impact: Where the Opportunities Lie
Goldman identifies a tactical sweet spot in stocks where share prices have diverged sharply from earnings per share. Specifically, the storage (GSTMTMEM) and data center (GSTMTDAT) sectors show the most pronounced valuation gaps, with earnings recovery not yet reflected in prices. These are deemed the most attractive tactical opportunities. The next key catalyst is Nvidia’s Q2 earnings, followed by a dense September conference season. Additionally, AI application layers are gaining attention, exemplified by Moderna and Merck’s collaboration on AI-assisted drug development, which has sparked interest in healthcare AI. Goldman’s data shows improving earnings revision breadth for healthcare AI beneficiaries (GSXGHDDD), with professional investor sentiment lifting generalist interest.
Structural Shifts: Momentum Rotates, Banks and Hard Assets Rise
Goldman highlights a significant reshuffling within momentum factors. Software has replaced semiconductors as the largest weight in the 3-month momentum long portfolio (GSXUHMO3), while semis and the AI complex have moved to the short side (GSXULMO3). This divergence between short-term and long-term momentum reflects broad disagreement over the next market leadership.
In banking, European and Japanese financials offer strategic value. With markets repricing higher-for-longer Fed rates, these banks benefit from improved non-interest income, fee growth, and shareholder returns. Japanese banks have outperformed the TOPIX and local semis over three months with lower volatility. European banks trade at a 15% discount to US peers, with Greek banks particularly favored—still 10% discounted to eurozone core, with M&A upside. Notably, European bank positioning is at two-year lows, enhancing their appeal.
Hard assets are another theme. Goldman is bullish on gold miners (up 32% this month but still 12% below highs, trading at 11x forward P/E, 20% below 5-year average), citing China demand, Fed rate cuts, and a weaker dollar from Treasury buybacks. Copper miners have lagged copper prices despite strong fundamentals, but a dovish Fed repricing could close this gap.
Key Takeaways for Investors
- AI trade is not over, but it’s evolving: Focus on valuation gaps in storage and data centers, and watch for AI application beneficiaries.
- Momentum rotation: Software over semis in the near term; be cautious of crowded AI momentum trades.
- Bank stocks: European and Japanese banks offer attractive valuations and improving fundamentals.
- Hard assets: Gold miners and copper miners have catch-up potential if the Fed turns dovish.
- Risk to watch: French political risk is underpriced; domestic French equities are vulnerable to valuation contraction.
Investors should brace for continued volatility but recognize that the deleveraging may set up a healthier entry point for selective risk-taking in September.
