Goldman Sachs: How to invest in tech stocks in the second half of the year?

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The AI market has entered a phase of high-level fluctuations. Can tech stocks still be bought in the second half of the year? Goldman Sachs' answer remains: Remain bullish, but shift from "buying sectors" to "picking companies."

In its latest report, Goldman Sachs points out that there are still no signs that the current AI-driven technology cycle has peaked—signals of supply surpassing demand and of technological progress slowing have yet to appear. Goldman analysts believe that this cycle may become one of the largest and longest upward technology cycles in history. After entering July, related stocks experienced some profit-taking. The report characterizes this as a healthy adjustment after a rapid price increase, rather than a reversal of the trend.

In terms of stock selection strategy, the report suggests three key themes: First, maintain a bullish view on AI servers and data center-related hardware stocks; second, in sub-sectors where supply and demand are already tight, focus more on prudent assessment of individual stock risk/return profiles; third, when market risk appetite decreases, pay attention to software and IT service stocks that are leveraging the AI disruption to create new business opportunities, using them as defensive allocations.

AI Cycle Has Not Peaked; Adjustment Is a Healthy Pullback

Goldman Sachs maintains an overall bullish view on the Asian AI supply chain.

The report notes that whether a technology cycle is ending can mainly be judged by two signals: first, if semiconductors and electronic components shift from being in short supply to being oversupplied; second, if innovation slows and industry competition returns to being price-driven instead of performance-driven. At present, neither signal has emerged.

Goldman believes that investment in AI infrastructure is still in an expansion phase; in the future, new applications such as physical AI and edge AI will pick up the baton from AI servers and data center construction, further extending this technology cycle. Therefore, recent profit-taking in related stocks should be regarded as a healthy adjustment after a rapid rise, not a reversal in fundamentals.

At the same time, supply and demand tightness is spreading from hot fields like memory and optical communications to more semiconductor sub-sectors, with industry prosperity continuing to broaden.

Investment Focus for the Second Half: From Sector Choice to Stock Selection

As many AI-benefiting sectors have surged significantly, Goldman Sachs believes that the investment logic for the second half will gradually shift from "picking the right sector" to "picking the right company."

The report proposes that companies worthy of attention usually have several shared attributes: they can directly benefit from rising product prices; they have strong capacity expansion abilities, capturing profit opportunities arising from tight supply and demand; their AI business growth potential has not yet been fully reflected in market valuations; or they possess unique catalysts that the market has not fully priced in.

In other words, after an overall elevation in valuations, future excess returns will come more from company-level competitiveness rather than industry beta.

Defensive Strategy Shifts to AI Applications Rather than Traditional Defensive Sectors

In addition to continuing allocations to AI hardware, Goldman Sachs also proposes a new defensive strategy.

The report believes that when market risk appetite declines, rather than avoiding the tech sector altogether, investors should focus on software, IT services, and internet companies that are leveraging AI to create incremental business opportunities. Goldman Sachs points out that generative AI is sparking new enterprise service needs such as AI consulting, data infrastructure development, and cybersecurity. Some software and IT service companies may actually benefit from improved development efficiency and reduced costs brought by AI tools.

Meanwhile, previous market concerns about AI diminishing content value are easing. Goldman believes that AI is more likely to become a new tool for improving commercialization and operational efficiency rather than simply replacing existing businesses; therefore, some internet and digital content companies are seeing improvements in their growth narratives.

Overall, Goldman Sachs believes that in the second half, Asian tech investing should still adhere to the AI theme, but allocation strategies need to be more balanced: on the offensive side, continue to focus on the AI infrastructure and hardware supply chain with sustained improvement; on the defensive side, focus on software and IT service firms that can use AI to create new demand and improve efficiency, balancing growth and defensiveness in a more volatile market environment.

Risk Disclosure and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable to their own circumstances. Investment decisions made accordingly are at your own risk. ```