Skip to main content

Goldman Sachs: Funds Flee Big Tech, Semiconductors Become New AI Darling

The Great Rotation: From Big Tech to AI Infrastructure

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

Why the Shift?

For a while, the seven tech leaders—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—were the darlings of Wall Street. But lately, they've been underperforming the broader market. Add to that growing concerns about their massive AI investments not translating into quick profits, and you have a recipe for caution. Institutions are trimming positions, and the data backs it up.

Options Market Speaks Volumes

Take a look at the options market. The cost of downside protection for the Invesco QQQ Trust (which tracks the Nasdaq-100) has shot up, far exceeding hedging costs for small-cap stocks. That's a clear sign of risk aversion. Investors are paying a premium to guard against a tech downturn, while smaller companies seem less scary.

What Could Bring Them Back?

Goldman Sachs says the only thing that could reignite confidence in big tech is stronger profit growth from their ultra-large-scale data center businesses. If those AI investments start paying off in a big way, the money might flow back. Until then, the underweight position is likely to stick.

Goldman's Own Bet on AI

Interestingly, Goldman Sachs itself is riding the AI wave. CEO David Solomon said in June that as long as market confidence holds, the AI boom will keep pushing stocks higher. The bank's own profits got a boost from AI-driven market volatility and trading demand, hitting $17 billion last year. Analysts predict another strong year ahead.

Key Points

  • Funds are rotating from the "Magnificent Seven" tech giants to AI upstream sectors like semiconductors.
  • Options market data shows rising hedging costs for Nasdaq ETFs, indicating risk aversion.
  • Goldman Sachs warns that only stronger profit growth from data center businesses can restore confidence in big tech.
  • Goldman itself benefits from AI-driven market volatility, with profits expected to remain strong.