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Goldman Sachs: Funds Flee Big Tech, Bet on AI Chips Instead

The Great Rotation: From Big Tech to AI Chips

Goldman Sachs has a message for the market: the love affair with the "Magnificent Seven" tech giants might be cooling off. According to derivatives expert Brian Garret, investors are now underweight on these mega-cap stocks, shifting their money instead into sectors that directly benefit from the AI boom—think semiconductors and other upstream players.

Why the Shift?

It's not that the tech titans are suddenly bad companies. But they've been underperforming the broader market lately, and there's growing unease about their massive AI investments. The big question: when will all that spending on data centers and AI models actually translate into profits? Until that answer becomes clearer, institutions are playing it safe and trimming their positions.

Options Market Speaks Volumes

If you want to see the fear, just look at the options market. The cost of hedging against a downturn in the Nasdaq—tracked by the Invesco QQQ ETF—has shot up, far exceeding the cost of protecting small-cap stocks. That's a clear sign that investors are bracing for more turbulence in tech.

What Could Change the Narrative?

Goldman Sachs says the only thing that could bring investors back to big tech is stronger profit growth from those ultra-large-scale data center businesses. Without that, the underweight stance is likely to continue. In other words, the market wants to see the money—not just the hype.

Goldman Sachs Itself Is Riding the AI Wave

Interestingly, Goldman Sachs isn't just analyzing the trend—it's benefiting from it. The bank's CEO noted back in June that as long as market confidence holds, the AI boom will keep driving stocks higher. And thanks to AI-fueled volatility and trading demand, Goldman Sachs posted $17 billion in profits last year. Analysts expect another strong year ahead.

Key Points

  • Investors are shifting from the "Magnificent Seven" to AI upstream sectors like semiconductors.
  • Options market data shows rising hedging costs for tech ETFs, indicating caution.
  • Goldman Sachs warns that only stronger profit growth from data centers can revive confidence in big tech.
  • The bank itself is profiting from AI-driven market volatility, with $17 billion in profits last year.