MarketsJul 20, 2026
Goldman Sachs Outlines Three Ways to Navigate the AI Sell-off
Market Rotation
Rhea Lobo
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Hedge funds have been selling US tech at the fastest pace on record. Goldman Sachs' Prime Services desk says the cumulative reduction in tech market value reached roughly 10% over the past two months. That is the largest retreat from the sector since Goldman began tracking the data more than a decade ago.
With the AI trade losing steam, Goldman Sachs strategist Ben Snider has published a roadmap for investors looking to rotate out of tech. The bank is pointing to three specific areas it believes are underappreciated and largely insulated from the volatility shaking chip stocks.
The first idea Goldman is pushing on investors is consumer experience stocks. These are companies in entertainment facilities, casinos, hotels, resorts, and cruise lines.
Goldman argues that spending on experiences accelerated from 1% growth in Q1 2025 to 6% growth in Q1 2026, while broader services spending held flat at 2%.
The bank screened for companies with market caps above $2B and found 36 contenders in the space. Many of these businesses skew toward higher-income consumers, which Goldman says provides some buffer against a consumer slowdown.
The physical nature of experiences also makes them harder for AI to disrupt than other service offerings, Goldman argues. The key risk is a weakening consumer, including through higher oil prices or a softening labor market.
Goldman's second recommendation is a category it calls compounders. These are companies with consistent earnings growth, strong returns on capital, and high free cash flow conversion that have recently lagged the broader market.
Goldman screened the Russell 1000 for stocks ranking above the median across those metrics and excluded the most clearly AI-related names.
The median compounder in Goldman's basket trades at 22 times earnings. That compares to 16 times for the equal-weight S&P 500, but Goldman notes that relative valuation is near 10-year lows.
The bank argues that a supportive macro backdrop and solid earnings growth outlook should help close that gap. A dovish pivot from the Federal Reserve or a broad improvement in the economic growth outlook represent the main risks to this trade.
The third trade is built around mergers and acquisitions. Announced deal volume has reached $1.2T so far in 2026, a 32% increase year-over-year. The number of deals has risen 12%, with 40% of activity concentrated in computers, electronics, and health care.
Goldman's M&A basket contains 71 companies that its analysts assess have a greater than 15% chance of being acquired.
The basket has outperformed the equal-weight S&P 1500 by 8 percentage points since the end of Q1. Despite that, Goldman says valuations still do not reflect an above-average acquisition premium.
The rotation is not just happening at the institutional level. The PHLX Semiconductor Index, which includes AI chip names like Nvidia and Micron Technology, has fallen into bear market territory, dropping 20% from its recent intraday peak.
Individual investors are cooling on Magnificent Seven stocks and funneling money toward infrastructure plays, chip suppliers, and smaller AI-adjacent names.
Retail traders bought a net $194M of Intel shares in July, compared to just $52M of Microsoft.
Goldman itself sees the longer-term AI story shifting toward the physical economy, including factories, utilities, and industrial businesses. But for now, its near-term playbook is clear: step away from momentum-driven chip stocks and look for value where AI volatility hasn't reached.
