Goldman Sachs launches "AI Shock Resistant" themed investment portfolio: long computing power and security, short replaceable software stocks

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In response to the increasing volatility of software stocks, Goldman Sachs has recently launched a new customized portfolio that bets on companies considered less susceptible to disruption by artificial intelligence (AI).

Goldman’s new offering is a software stocks “long-short pair trading” portfolio: going long on companies deemed difficult to be replaced by AI, such as those whose businesses require physical execution, are strictly regulated, or require human responsibility; while shorting companies whose workflows are likely to be increasingly automated by AI or replaced internally by enterprises.

On the long side, Goldman is optimistic about companies that will directly benefit from rising AI adoption, including computing power providers, data infrastructure firms, observability tools, cybersecurity companies, hyperscale cloud service providers, and AI development platforms. Companies included in this portfolio are Cloudflare, CrowdStrike, Palo Alto Networks, Oracle, and Microsoft, among others.

On the short side, traders target companies whose software-driven workflows may be automated or rebuilt internally as AI capabilities improve. These companies include Monday.com, Salesforce, DocuSign, Accenture, and Duolingo, among others.

According to media reports, Faris Mourad, Vice President of Goldman Sachs’ US Custom Basket team, wrote to clients in a report:

“We expect that as the recent software stock sell-off comes to an end, the long side of the portfolio will rebound, while the short side will continue to underperform.”

The launch of this portfolio comes at a time when market concerns over the disruptive impact of AI are escalating. Last week, Anthropic released an efficiency tool aimed at corporate legal teams, triggering a sharp decline in legal software and publishing stocks.

Soon after, the sell-off spread further. A lesser-known startup, Altruist, launched a tax strategy tool, causing shares of Charles Schwab, LPL Financial, and others to fall by more than 10% over the past week.

According to media reports, Wall Street has been skeptical about software stocks for several months, but recent market sentiment has shifted from caution to clear defense. As concerns grow that generative AI may erode traditional business models and compress profit margins, investors have been selling off stocks across the entire industry.

This wave of sell-offs has also reset valuation levels. A year ago, the price-to-earnings ratio of software stocks was about 51 times, the highest of any sector in the stock market. Today, the sector’s price-to-earnings ratio is about 27 times.

Overall earnings expectations remain stable. According to media forecasts, the software and services sub-sector is expected to achieve around 14.1% earnings growth by 2026. Although this growth rate is lower than the overall technology sector’s expected growth of around 31.7%, boosted by semiconductor expansion, it is still higher than the S&P 500’s forecasted earnings growth of 13.7%.

Risk Warning and DisclaimerThe market involves risks, and investments should be made with caution. This article does not constitute personal investment advice and does not 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 for their individual circumstances. Investment decisions are made at your own risk. ```