Goldman Sachs Highlights AI Software Stocks as a Bright Spot Amid Challenging Tech Landscape
Goldman Sachs is drawing attention to software stocks tied to emerging AI technologies as a promising avenue in an otherwise struggling AI trade. While the broader AI sector has faced significant headwinds this year, including macroeconomic volatility and tech sector challenges, a specific group of AI-exposed stocks—referred to as "phase 3" AI stocks—is showing resilience. These software companies, which are poised to benefit from advancements in AI, have experienced positive sales revisions year-to-date, standing out in contrast to other segments of the AI trade. According to Goldman Sachs, the consensus 2026 sales forecasts for phase 3 stocks have been revised 0.3% higher so far this year, a stark contrast to the 0.3% downside revisions seen in both phase 2 and phase 4 AI stocks.
Phase 2 AI stocks, which are closely tied to AI infrastructure, have faced a particularly difficult year. After surging since 2022 on the back of rapid investments in AI infrastructure, including chips and hardware, these equities have fallen out of favor. Concerns about inflated valuations and rising competition from China’s tech sector have further dampened sentiment. Additionally, the growing efficiency of AI technologies has raised questions about the sustainability of high levels of spending by AI "hyperscalers," putting pressure on hardware companies. The Philadelphia Semiconductor index, for instance, has dropped nearly 15% since mid-February, reflecting the broader decline in confidence in this space. Even strong earnings from industry leaders, such as a fourth-quarter beat by Nvidia, have failed to stem the slide in share prices, with the AI giant now trading in bear market territory after falling 20% from its February high.
Phase 3 AI Stocks Offer a More Favorable Risk-Reward Profile
Goldman Sachs emphasizes that phase 3 AI stocks—software companies that leverage AI to drive revenue—offer a more attractive risk-reward profile compared to phase 2 AI infrastructure stocks. The bank notes that while phase 2 stocks continue to trade slightly above their historical average valuations, phase 3 stocks are currently trading at a discount relative to their historical averages. This dynamic, coupled with the declining costs of AI technologies, makes phase 3 stocks particularly compelling for investors looking to capitalize on the long-term growth potential of AI. As AI costs decrease, companies with AI-enabled revenues are likely to gain greater traction, making them a more sustainable bet for new capital allocation.
The bank has identified a slate of software stocks that it expects to deliver the fastest sales growth over the next two years, with compound annual sales growth rates estimated between 2024 and 2026. While the exact names of these stocks were not disclosed, the focus on software firms that are well-positioned to benefit from AI-driven innovations underscores the broader shift in investor sentiment toward companies that can harness AI technologies to enhance their core offerings. This optimism from Goldman Sachs offers a rare silver lining in what has otherwise been a challenging period for the tech trade, particularly for hardware-focused AI investments.
AI Phase 4 Beneficiaries Begin to Emerge
Looking ahead, Goldman Sachs also highlighted the emergence of phase 4 AI beneficiaries—companies that are beginning to realize productivity gains from AI adoption. While this phase is still in its early stages, the bank pointed to firms like Amazon, Cognizant Technology Solutions, and IQVIA Holdings as examples of companies that are leveraging AI to streamline operations and enhance efficiency. These businesses are at the forefront of a broader trend where organizations across industries are harnessing AI to automate processes, improve decision-making, and drive innovation. As AI technologies mature and become more accessible, the list of phase 4 beneficiaries is likely to expand further, creating new opportunities for investors.
The Path Forward for AI Stocks
Despite the current challenges facing the AI trade, Goldman Sachs remains optimistic about the long-term prospects for AI-exposed stocks, particularly in the software space. The bank notes that while the recent rotation out of phase 2 stocks may persist in the near term, improving economic data or a relaxation of tariff policies could help reverse this trend. However, uncertainty remains high, and investors may need to remain patient as the market continues to navigate its current volatility. For now, the focus on phase 3 and phase 4 AI stocks offers a clear pathway for those seeking to capitalize on the transformative potential of AI without exposure to the more volatile hardware-focused segments of the market.
In conclusion, while the AI trade as a whole has faced significant headwinds this year, Goldman Sachs is identifying pockets of strength that warrant attention from investors. Phase 3 AI stocks, in particular, stand out as a beacon of hope, offering a favorable risk-reward profile amid the broader tech sector challenges. As the AI landscape continues to evolve, investors who remain attuned to these emerging opportunities are well-positioned to benefit from the long-term growth potential of this transformative technology.
