Goldman Sachs Expects AI-Led Tech Cycle to Continue, Urges Shift to Stock Picking

Goldman Sachs said the AI-driven technology cycle shows no signs of peaking and argued that recent profit-taking should be viewed as a healthy pullback rather than a trend reversal. According to ChainCatcher, the bank said key late-cycle signals—semiconductor and component markets shifting from shortage to oversupply, and innovation slowing with competition reverting to price rather than performance—have not appeared.

Goldman Sachs maintained a bullish view on the broader Asian AI supply chain, citing ongoing expansion in AI infrastructure investment. It added that emerging applications such as physical AI and edge AI could extend the cycle beyond the current buildout of AI servers and data centers.

The report said supply-demand tightness that has been evident in areas such as memory and optical communications is spreading to more semiconductor sub-sectors, suggesting the upturn is broadening.

For the second half of the year, Goldman Sachs said the investment approach should shift from choosing the right industry to selecting the right companies, after significant gains across several AI-related segments. It highlighted company traits it views as supportive of outperformance, including direct exposure to product price increases, strong capacity expansion capability, AI growth potential not fully reflected in valuations, or unique catalysts not yet priced by the market.

As a defensive approach during periods of weaker risk appetite, the bank suggested focusing on software, IT services, and internet companies that can use AI to create new business opportunities. It said generative AI is driving demand for services such as AI consulting, data infrastructure buildouts, and cybersecurity, and that some firms could see profitability benefits from improved development efficiency and lower costs.

Goldman Sachs also said concerns that AI would erode content value are easing, arguing AI may improve monetization and operating efficiency rather than simply replace existing businesses.