“We are witnessing a wave of AI creative destruction sweeping across industries worldwide!” Goldman Sachs partner: Essentially, this is a ‘moat inspection.’

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Goldman Sachs partner Rich Privorotsky warns that a wave of "creative destruction" driven by artificial intelligence is sweeping across global industries in real time. Essentially, this is a comprehensive test of companies' moats.

From last week’s blow to the software sector, to early this week with insurance and wealth management stocks, and then to real estate services and logistics sectors in the latter half of the week. AI was initially regarded as a bullish factor for the stock market, but is now aggressively testing which companies truly have defensible competitive advantages.

The “sell first, ask questions later” sentiment is spreading in the market, and selling is accelerating, but aside from AI concerns, there is no clear catalyst. Goldman Sachs partner Rich Privorotsky believes this is a moat check:

Can the company's business withstand technological shocks? If there were an army of robots, could it disrupt the existing companies? Must companies compete by investing or acquiring, or else be replaced?

Privorotsky further emphasized the need to be alert to CTA (Commodity Trading Advisor) trigger signals in major US stock indices. Goldman Sachs currently estimates that CTAs will sell $1.5 to $2 billion in US stocks in the coming week.

Software sector valuations under pressure

Rich Privorotsky believes that AI has not provided effortless profits; on the contrary, it is exposing those who want to "lie flat and collect interest" in the economy with nowhere to hide.

In many fields once considered to have moats, technological progress is rapidly dismantling fortresses built on experience and knowledge work, with new entrants posing swift challenges to existing companies.

Once concerns around AI disrupt market sentiment, the terminal value of software and technology sectors comes into question—this is the core issue facing the market now.

Privorotsky points out that, based on his trading experience, valuation multiples are the hardest metric to anchor; once they come under question, it is often hard to stop.

Currently, public company valuations have fallen from more than 30 times P/E (blended forward 24 months) to just over 20 times, but private equity portfolio valuations often remain at much higher levels.

Thus, this turmoil has spread along the chain from the public markets to the private equity sector, and further to private credit, especially the leveraged loan market.

Market sends shock signals for growth

In the past week, US Treasury yields have fallen, while cyclical stocks were sold off relative to defensive stocks.

Goldman Sachs points out that the current market feels like a short-term growth shock. The yield curve is flattening, and bonds continue to rise.

According to WallstreetCN, US January CPI year-on-year was 2.4%, below expectations, and core CPI fell to its lowest level in four years. Market concern about inflation has waned, in line with the narrative that AI will disrupt more industries faster than expected.

Goldman Sachs believes the end result could be outright deflation in some sectors, as "rent-seekers" are losing pricing power.

Investors should look for real moats

In this environment, Rich Privorotsky recommends focusing on companies with genuine moats and physical assets.

The timing feels right for the aerospace sector, with Airbus-type exposures worth watching. Industrials should perform well, but choose those benefiting from investment cycles, not just short-cycle cyclicals.

Physical assets are the direction to be long, although it’s not worth chasing the current commodity surge. He is optimistic about European REITs/long German residential real estate, but will not touch office REITs.

Banks appear fragile, facing fourfold risk: in Europe, they are a crowded long position; almost no AI disruption or net interest margin compression risk is priced in; dollar weakness under deflationary mechanisms is negative for the yield curve; in the US, prediction markets show a probability of over 30% for a Democratic sweep, which significantly increases regulatory risk.

CTA selling trigger point approaching

Rich Privorotsky stresses the need to watch CTA trigger levels in US indices.

In North America, the Nasdaq 100—not the S&P 500—is expected to see the heaviest selling. The S&P 500 has broken below its 50-day moving average (6,895) and CTA short-term threshold (6,911).

The good news is that the scale of selling is still moderate. Goldman Sachs currently estimates that CTAs will sell $1.5 to $2 billion in US stocks in the coming week. In addition, the S&P 500 remains about 110 points above the mid-term threshold of 6,723—breaking below this level would accelerate the pace of selling.

(Predicted capital flows under different scenarios for the S&P 500 over the next month)

Rich Privorotsky says, as AI lowers barriers to entry daily, it’s a market of winners and losers. He cannot predict what tomorrow’s shipping industry will look like, but one thing is certain: terminal valuation multiples are under question, which is structurally problematic.

The current environment favors companies with real moats and tangible value. Emerging markets are still a relatively clear safe haven, and trades in other parts of the world will continue to drive relatively strong performance.

Risk disclaimerThere are risks in the market, and investments should be made cautiously. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. All investments made accordingly are at your own risk. ```