Don't just focus on CPI! Goldman Sachs: Two major AI catalysts will be even more important in the coming week, potentially triggering a "right-tail" rally in US stocks.

Don't just focus on CPI! Goldman Sachs: Two major AI catalysts will be even more important in the coming week, potentially triggering a "right-tail" rally in US stocks.

While US stock investors hold their breath awaiting inflation data, Goldman Sachs strategist Lee Coppersmith is looking in a different direction – he believes that AI will be the key variable determining the market's direction in the coming week.

The release of OpenAI's flagship new model, Astra, the Goldman Sachs Communacopia+ technology conference (OpenAI will take the stage on Tuesday at 9:30 AM Pacific Time), and extremely compressed position levels have collectively created a "spring-loaded" market structure. Coppersmith, in its latest research report, points out that the market has three possible paths: inflation data, the release of OpenAI Astra, and whether the current "Goldilocks" pricing, which is already heavily embedded with optimistic growth expectations, can continue—any one of these could be enough to trigger a market move.

At the market structure level, the net leverage ratio of US fundamental long/short hedge funds is only at the 4th percentile of the past year, and the implied volatility of semiconductors (VXSMH) has plummeted from about 65 in July to 36, nearly halved; Goldman Sachs' technology long/short momentum portfolio is still down about 50% from its high at the end of June—all of this against the backdrop of the S&P 500 straddle premium being only about 1% this week. In other words, the market is unusually compliant with volatility pricing, yet simultaneously faces a barrage of catalysts.

Positions are extremely thin, and the options market is underestimating the risks.

The current market positioning provides ample room for potential market movements. According to Goldman Sachs proprietary data, the net leverage ratio of its US fundamental long/short strategy is at the 4th percentile, and the total leverage ratio is at the 27th percentile, a stark contrast to two months ago. Although there has been some recent replenishment, the overall position remains extremely light.

The options market also reflects this risk-averse process. Semiconductor volatility underwent a significant reset, with the VXSMH falling from around 65 in July to 36, returning to levels seen in early 2026. However, the market did not turn bearish as a result—the average put/call skew of S&P 500 components remains near a three-year low. This means that while the options market compressed the implied range of outcomes, it priced in almost no downside risk.

Coppersmith argues that, under these dynamics, holding "right-tail" exposure through options offers high cost-effectiveness. Light positions, compressed volatility, and a multitude of catalysts combine to create an asymmetric risk-reward structure.

With a flurry of AI catalysts emerging, Goldman Sachs is bullish on rising capital expenditures.

This coming week will see a major test of the AI narrative. The Goldman Sachs Communacopia+ technology conference brings together 40 publicly traded and private companies, with core topics focusing on AI spending, returns, and the competitive landscape in 2027 and beyond. Goldman Sachs' research team maintains its bullish outlook on AI capital expenditure, predicting that computing demand will continue to outpace supply until 2028.

Meanwhile, Goldman Sachs' technology long/short momentum portfolio has fallen by about 50% from its late June high, and even Friday's nearly 7% rebound failed to reverse the downward trend. This has come at a high cost to investors trying to time the recent sector rotation. Coppersmith points out that this pain is precisely where the opportunity lies—it is because re-entry is not easy that we have seen a net leverage ratio at the 4th percentile and semiconductor volatility halved.

At the specific stock level, Micron and SanDisk, after a summer of consolidation, have begun to show signs of breaking out of their recent downward trends.

Macroeconomic "Goldilocks" conditions are fragile, and growth optimism has been fully priced in.

Despite light positioning, upside potential at the macro level is limited. Goldman Sachs research team points out that further improvement in risk appetite requires lower interest rates rather than stronger growth expectations. Currently, the growth component of Goldman Sachs' risk appetite index is nearing the top of its post-pandemic range, while the monetary policy component remains negative.

The ideal "Goldilocks" scenario is that the reopening of the Strait of Hormuz drives down energy prices, coupled with a further decline in US inflation. However, with optimistic growth expectations already largely priced into various assets, the buffer space is quite limited should growth fall short of expectations or new geopolitical shocks occur.

The dynamics of profitability and valuation are also worth paying attention to.

This year, the earnings of the technology sector have been primarily supported by AI capital expenditures and book gains on equity investments. Investors' willingness to assign higher valuations to AI earnings, which are increasingly cyclical, continues to decline, and the rising leverage ratios within the AI ecosystem have exacerbated this pressure. Goldman Sachs' strategy team expects the equity Sharpe ratio to decline in the future, but if interest rates fall while growth remains resilient, it will help valuations recover—especially as AI applications expand from infrastructure construction to broader scenarios.

Hedging strategy: Go long on broad-based AI stocks and short on non-AI S&P 500.

In terms of risk hedging, Coppersmith offers a specific operational framework: providing highly attractive convexity for downside protection on the S&P 500 non-AI index (SPXXAI). This index has continued to strengthen over the past two months as investors have been forced to rotate out of AI, and remains at historical highs—it will face reverse pressure once funds flow back into AI.

Coppersmith believes that a long position in the broad-based AI index (GSTMTAIP) and a short position in the SPXXAI pair are currently attractively valued.

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