Goldman Sachs’ Peter Callahan said the AI theme remains intact but has become “much more of a stock picker’s market,” with investors increasingly focused on software, cybersecurity, data infrastructure and agentic commerce.
- Callahan noted that investors are beginning to look further up the technology stack after focusing heavily on semiconductors and AI capital-expenditure beneficiaries.
- He added that this is happening amid companies and investors increasingly focusing on whether the massive spending on infrastructure is translating into measurable returns.
- Callahan said companies are reporting productivity gains and new revenue opportunities from AI, but the market is looking for a clearer “measuring stick.”
The AI trade is broadening beyond semiconductor makers and companies benefiting from AI capital expenditures, according to Goldman Sachs, as investors increasingly focus on businesses helping organizations adopt and deploy the technology.
Peter Callahan, Goldman Sachs’ U.S. technology, media and telecommunications sector specialist, said the AI theme remains intact but has become “much more of a stock picker’s market,” with investors increasingly focused on software, cybersecurity, data infrastructure and agentic commerce.
AI Trade Moves ‘Up The Stack’
Callahan noted that investors are beginning to look further up the technology stack after focusing heavily on semiconductors and AI capital-expenditure beneficiaries.
“You’re starting to see more focus up the stack,” he said, pointing to infrastructure software, security software and companies helping businesses adopt and deploy AI.
Agentic commerce, cybersecurity and data infrastructure have all become part of the broader AI trade, Callahan said.
“The trade has broadened out,” he said, adding that the shift creates a market that is increasingly driven by individual stock selection rather than one dominant AI theme.
AI Spending Faces A New Test
Callahan noted that this broadening comes as companies and investors increasingly focus on whether the massive spending on infrastructure is translating into measurable returns.
He said companies are reporting productivity gains and new revenue opportunities from AI, but the market is looking for a clearer “measuring stick” for the trillions of dollars being spent on capital expenditures.
Callahan added that while investors remain confident in AI as a decade-long megatrend, uncertainty has increased around the “linearity of the deployment,” particularly the pace at which data centers are physically built and turned on.
Higher Rates Put More Pressure On Tech Earnings
Rising interest rates are adding another layer of pressure to technology stocks. Callahan said Nasdaq valuations have compressed by about 20% this year, with higher Treasury yields contributing to the decline in multiples.
That means earnings growth has to do more of the work for technology stocks. “Is it putting more pressure on earnings to do the heavy lifting rather than multiple? Certainly,” Callahan said.
Still, he said the AI theme and earnings growth remain intact. If AI delivers the expected productivity gains and corporate margins remain healthy, Callahan sees a potential path higher for technology stocks into 2027 and 2028.
During the after-hours session on Friday, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, rose 0.03%; the Invesco QQQ Trust ETF (QQQ) was flat; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.12%. Retail sentiment on Stocktwits toward the S&P 500 ETF was in the ‘extremely bullish’ territory at the time of writing.
The iShares U.S. Technology ETF (IYW) is up 35% year-to-date, while the Global X Artificial Intelligence & Technology ETF (AIQ) is up 30%.
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