As trading related to global AI computing infrastructure undergoes a sharp, volatile correction, reigniting interest in other market sectors, Wall Street giant Goldman Sachs, in line with its peers, is actively urging investors to look beyond AI-related technology stocks.
Recently, the South Korean stock market, often seen as an AI computing barometer, has frequently experienced trading halts due to surges and plunges. The U.S. Philadelphia Semiconductor Index has fallen over 20% from its June high, entering a technical bear market. The extreme selling in global AI computing and semiconductor stocks, driven by overcrowded and highly leveraged long positions, appears to be shifting global investment flows towards high-quality fundamentals, low momentum, ample cash flow, and strong cyclical and defensive sectors that have significantly lagged the hot tech rally this year.
A team led by Goldman Sachs senior equity strategist Ben Snider stated in a report released Friday that the volatility of the popular AI computing infrastructure momentum trade has surged to historically high levels outside of recession periods, even as the equal-weight S&P 500 index continues to hit new highs.
The strategists believe that correlations between stocks within the market have fallen to historic lows, keeping overall index volatility low, which also signifies significant internal market turbulence.
Global equity and broader financial markets are facing a compound "super stress test": a major escalation in Middle East geopolitical conflict, a resurgence of energy inflation, and the deleveraging of the AI computing momentum theme. The Philadelphia Semiconductor Index has retreated over 20% from its June peak, officially entering a technical bear market. South Korean stocks, burdened by high weighting in memory chips, daily rebalancing of single-stock leveraged ETFs, and concentrated retail margin positions, have become the epicenter of the global AI trade reversal.
From the Seoul chip deleveraging frenzy to Wall Street's quantitative search for "safe havens," stocks with consistently strong cash flow, robust balance sheets, and long-term underperformance relative to the AI theme are now the undisputed stars of the market. For instance, Apple Inc. (AAPL.US), viewed as an "AI laggard" but sitting on massive cash, has seen its shares surge recently amid the AI computing sell-off, reclaiming its title as the world's most valuable company.
Rising Middle East geopolitical risks undoubtedly complicate the pressure test of tech giants' earnings. Renewed U.S.-Iran tensions have slowed oil tanker traffic through the Strait of Hormuz, with Brent crude briefly surpassing $90. The strait handles about 20% of global energy shipments; a prolonged closure could reopen the path to energy inflation, pressure on corporate margins, and a "higher for longer" Fed policy outlook.
The most reasonable market framework currently may not be simply declaring the "end of the AI super bull market" or blindly buying the dip after a crash. Instead, the market is entering a phase of surface-level index churn, extremely high internal dispersion, and the renewed pricing power of cash flow. In the short term, investors should reduce exposure to single-stock leveraged ETFs, short-dated call options, and high-momentum plays reliant purely on valuation expansion, and hedge oil price and interest rate risks with high-quality balance sheets, defensive cash flows, energy, and some undervalued cyclical assets.
AI Momentum Shaken, Capital Seeks a 'Secondary Front': Goldman Sachs Targets Experience Consumption, Quality Compounders, and M&A Candidates
The firm stated that its constructed long/short momentum factor is highly exposed to AI infrastructure companies, particularly in semiconductors and high-end tech hardware. Over the past three months, the annualized volatility of this factor has reached 36%. Goldman Sachs expects this trade will continue to face significant near-term challenges, primarily because hedge fund leveraged positioning remains elevated, and after a cumulative ~$100 billion upward revision in capital expenditure guidance from North American tech giants last quarter, a similarly large increase in the current earnings season is unlikely.
In contrast, Goldman Sachs highlighted three themes it believes have limited correlation to AI-related stocks and could offer attractive alpha opportunities: consumer experience companies, high-quality "compound growth businesses," and potential large-cap merger and acquisition targets.
Goldman's proposed three alternative themes essentially shift the pricing anchor from "computing capital expenditure beta" to "real demand, cash flow compounding, and event-driven alpha." The experience consumption basket is up 17% this year, with growth in spending on sports, lodging, and entertainment accelerating from 1% in Q1 2025 to 6% in Q1 2026. Quality compounders boast high returns on invested capital, strong balance sheets, and free cash flow, yet their relative valuation premium is only in the 13th percentile since 2016. Announced M&A volume in the U.S. has reached $1.2 trillion year-to-date, up 32% year-over-year, providing a catalyst for potential targets.
Leaders in Consumer Experience Stocks
The Goldman Sachs strategists stated that companies focused on in-person, physical consumer experiences may benefit from continued strong growth in discretionary spending by high-net-worth individuals while being relatively less vulnerable to disruption by cutting-edge AI technologies. The firm's specific screening list includes 36 companies across sub-sectors such as hotels, cruises, casinos, entertainment, and leisure facilities. This equal-weighted portfolio is up 17% year-to-date, outperforming the equal-weighted consumer discretionary sector by 17 percentage points, yet its valuation remains below long-term average levels.
The report notes that growth in experiential consumer spending has outpaced overall services spending. Goldman Sachs data shows that spending growth in economic activities including sports centers, parks, museums, gambling, and lodging accelerated from 1% in Q1 2025 to 6% in Q1 2026, compared to overall services spending growth of around 2%. Specific companies on the list include The Walt Disney Company (DIS.US), Marriott International, Inc. (MAR.US), Royal Caribbean Cruises Ltd. (RCL.US), Hilton Worldwide Holdings Inc. (HLT.US), Viking Holdings Ltd. (VIK.US), Live Nation Entertainment, Inc. (LYV.US), MGM Resorts International (MGM.US), Wynn Resorts, Limited (WYNN.US), Planet Fitness, Inc. (PLNT.US), and Vail Resorts, Inc. (MTN.US).
Quality Compound Growth Businesses Trading at a Discount
Goldman also screened for a basket of 15 "compound growth businesses." These companies exhibit strong earnings growth, high returns on invested capital, robust balance sheets, and healthy free cash flow generation. Despite median EPS growth for this basket over the past three years being double that of the median S&P 500 company, the basket has still lagged the equal-weight S&P 500 by about 7 percentage points year-to-date. Goldman states this has pushed its valuation relative to the broad U.S. market benchmark to near-decade lows.
The median forward P/E of the screened list is approximately 22x, compared to 16x for the equal-weight S&P 500, representing a 37% valuation premium. Since 2016, this premium has only been in the 13th percentile. Goldman suggests that improving earnings growth and a favorable macroeconomic backdrop could help narrow this valuation gap. Companies on the list reportedly include Mastercard Incorporated (MA.US), Visa Inc. (V.US), Booking Holdings Inc. (BKNG.US), Marriott International, Inc. (MAR.US), McKesson Corporation (MCK.US), DexCom, Inc. (DXCM.US), Insulet Corporation (PODD.US), Morningstar, Inc. (MORN.US), and MSCI Inc. (MSCI.US).
Accelerating Merger and Acquisition Activity
With large-deal activity in the U.S. market continuing to recover, Goldman Sachs also sees significant potential alpha opportunities in companies viewed as potential acquisition targets. The firm states that announced M&A volume in the U.S. has reached $1.2 trillion year-to-date, a substantial 32% increase from the same period last year, while the number of deals announced has increased each month since the start of 2026. The computer & electronics and healthcare sectors together account for about 40% of announced deals.
Goldman attributes the stronger M&A environment to favorable financial conditions, solid economic growth, improving CEO confidence trends, and a supportive domestic regulatory backdrop. The firm's analysts generally believe the current large-cap M&A cycle is about halfway complete. The firm's constructed "M&A Stock Basket" of 71 potential acquisition candidates has outperformed the equal-weight S&P 1500 index by a significant 8 percentage points since the end of Q1.
Goldman Sachs states that current valuations do not yet reflect an unusually high probability of being acquired or undergoing a formal takeover, especially outside the biotech sector, where expectations for large-scale M&A appear partially priced in.
From the Chip Frenzy to Embracing Cash Flow: After the Philly Semiconductor Index Falls into a Bear Market, Global Capital Seeks a 'Secondary Front' Beyond AI
Over the past two months, the investment strategy and style index focused on buying quality stocks has performed best among the eight sub-factors tracked by Barclays Plc. As selling pressure around AI computing infrastructure and popular semiconductor stocks sweeps global financial markets, the neglected quantitative safety trade is making a strong comeback.
With recent heightened investor concerns over the AI computing theme trade, investors are seeking refuge in a more mundane corner of the stock market: companies with long-term robust financial health. Data compiled by Barclays shows that last year, Wall Street institutional investors obsessed with AI theme trades largely abandoned fundamentally sound stocks with low valuations and ample cash flow, pushing a valuation metric to near-historic lows. Now, with rising concerns over crowded and leveraged AI positioning and the Fed's interest rate path, this investment style is regaining vigor.
The AI computing infrastructure trade has shifted from a one-way momentum play into a phase of high volatility, decrowding, and capital return validation. Portfolios need to reduce reliance on the single factor of semiconductors and tech hardware. The long/short momentum factor highly exposed to the AI computing supply chain has seen its annualized volatility over the past three months rise to 36%, reaching rare levels outside of recessions. Hedge fund positioning remains high, and after hyperscale tech firms collectively raised their capital expenditure guidance by approximately $100 billion last quarter, the probability of a similar magnitude of upward revisions in the current earnings season is limited.
Extremely low correlations between stocks have allowed the equal-weight S&P 500 to continue making new highs, also indicating the current phase is more about the internal unwinding of the crowded AI trade and market breadth expansion, rather than a collapse in overall U.S. stock market demand.
The South Korean and U.S. semiconductor markets reveal the micro-mechanisms of this adjustment: The Philadelphia Semiconductor Index has fallen over 20% from its June peak, entering a technical bear market. South Korea's KOSPI also fell over 20% from its record high at one point. The high index weighting of Samsung Electronics Co., Ltd. and SK Hynix Inc., combined with single-stock leveraged ETFs, margin financing, and concentrated trend-following capital, rapidly transformed fundamental profit concerns into mechanical rebalancing, stop-loss, and liquidation selling. South Korean regulators have consequently suspended new product listings in this area and raised the minimum margin for retail participation in single-stock leveraged ETFs to 30 million won.
This shows that global capital is not entirely rejecting AI computing demand but is reducing exposure to highly leveraged, high-momentum, high-valuation plays reliant on continuously accelerating capital expenditure. Goldman Sachs' proposed three alternative themes—experience consumption, quality compounders, and M&A alpha—essentially shift the pricing anchor from "computing capital expenditure beta" to "real demand, cash flow compounding, and event-driven alpha," aiming to reduce factor correlation through experience consumption, discounted quality stocks, and M&A candidates. In the next phase, what will be truly scarce is not "being related to AI," but the ability to deliver profits and cash flow without relying on continuous leverage increases.
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