Goldman Sachs launches "Anti-AI Impact" themed investment portfolio: go long on computing power and security, go short on replaceable software stocks
Goldman Sachs has launched a new long-short software stock strategy, going long on companies whose businesses are difficult to be replaced by artificial intelligence or that directly benefit from the growth in AI demand, while shorting software companies that may be automated or replaced internally by enterprises. Previously, with the launch of AI tools for legal and tax purposes by companies like Anthropic, related software stocks saw significant declines, and concerns about the impact of generative AI on business models are intensifying
To cope with the increasing volatility of software stocks, Goldman Sachs recently launched a new customized stock portfolio that bets on companies considered less susceptible to the impact of artificial intelligence (AI).
Goldman Sachs has introduced a "long-short pair trading" portfolio for software stocks: going long on companies deemed difficult to replace by AI, which typically require physical execution, are subject to strict regulation, or must be accountable to humans; while shorting companies whose workflows may increasingly be automated by AI or replaced internally by enterprises.
On the long side, Goldman Sachs is optimistic about companies that will directly benefit from the rising adoption of AI, including computing power providers, data infrastructure companies, observability tools, security network companies, hyperscale cloud service providers, and AI development platforms. Companies included in this portfolio are Cloudflare, CrowdStrike, Palo Alto Networks, Oracle, and Microsoft.
On the short side, traders are targeting software-driven companies whose workflows may be automated or rebuilt internally as AI capabilities improve. These companies include Monday.com, Salesforce, DocuSign, Accenture, and Duolingo.
Media reports indicate that Faris Mourad, Vice President of Goldman Sachs' U.S. Customized Basket Team, wrote in a report to clients:
"We expect that as the recent sell-off in software stocks comes to an end, the long portion of the portfolio will rebound, while the short portion will continue to lag."
The launch of this portfolio comes amid growing concerns in the market about the disruptive impact of AI. Last week, Anthropic launched an efficiency tool aimed at corporate legal teams, causing significant declines in legal software and publishing stocks.
Subsequently, this round of sell-off continued to expand. A lesser-known startup, Altruist, launched a tax strategy tool, leading to a drop of over 10% in the stock prices of companies like Charles Schwab and LPL Financial over the past week.
Media reports state that skepticism on Wall Street regarding software stocks has been building for months, but the recent market sentiment has shifted from cautious to clearly defensive. As concerns grow that generative AI may erode traditional business models and compress profit margins, investors are selling off stocks across the entire industry.
This round of sell-off has also reset valuation levels. A year ago, the price-to-earnings ratio of software stocks was around 51 times, making it the highest-valued sector in the stock market. Now, the sector's price-to-earnings ratio is approximately 27 times.
Overall, earnings expectations remain stable. According to media forecasts, the software and services sub-industry is expected to achieve about 14.1% earnings growth by 2026. Although this growth rate is lower than the expected growth rate of approximately 31.7% for the entire technology sector, which benefits from the expansion of the semiconductor industry, it is still higher than the S&P 500's expected earnings growth of 13.7%
