Goldman Sachs: How to buy tech stocks in the second half of the year?

Author: Li Jia

The AI market is entering a high-level fluctuation. Can technology stocks still be bought in the second half of the year? Goldman Sachs' answer remains: Continue to be bullish, but shift from "buying sectors" to "picking companies."

In its latest report, Goldman Sachs pointed out that there are currently no signs of a peak in the AI-driven technology cycle, and signals of supply exceeding demand and a slowdown in technological evolution have not yet appeared. Goldman Sachs analysts believe that this cycle is expected to become one of the largest and longest-lasting technology upcycles in history. After entering July, related stocks experienced profit-taking, which the report characterized as a healthy adjustment after a rapid rise in stock prices, rather than a trend reversal.

In terms of stock selection strategy, the report proposed three core themes: first, continue to be bullish on AI servers and data center-related hardware stocks; second, in segments where supply and demand have tightened, pay more attention to the fine assessment of individual stock risk and return; third, when market risk appetite declines, focus on software and IT service stocks that are leveraging the AI disruption wave to explore new business opportunities as a defensive allocation.

The AI cycle has not peaked, and adjustments are a healthy pullback

Goldman Sachs maintains an overall bullish view on the Asian AI supply chain.

The report pointed out that to determine whether the technology cycle is nearing its end, two signals should be observed: first, semiconductors and electronic components begin to shift from supply shortages to oversupply; second, technological innovation slows down, and industry competition returns to being price-driven rather than performance-driven. Currently, neither of these signals has appeared.

Goldman Sachs believes that investment in AI infrastructure is still in the expansion phase, and future new applications such as physical AI and edge AI will continue to take over AI server and data center construction, further extending this technology cycle. Therefore, the recent profit-taking in related stocks should be viewed as a healthy adjustment after a rapid rise, rather than a fundamental reversal.

At the same time, supply and demand tightness is gradually spreading from popular areas such as storage and optical communication to more semiconductor sub-industries, and the scope of industry prosperity is still expanding.

Investment focus in the second half of the year: shifting from sector selection to individual stock screening

As many AI beneficiary sectors have experienced significant rises, Goldman Sachs believes that the investment logic in the second half of the year will gradually shift from "buying the right industry" to "picking the right company."

The report suggests that companies worth paying attention to typically share several common characteristics: they can directly benefit from product price increases; they have strong capacity for expansion and can seize profit opportunities arising from supply and demand tightness; the growth potential of their AI business has not yet been fully reflected in market valuations; or they possess unique catalytic factors that the market has not fully priced in.

In other words, after an overall increase in valuations, future excess returns will more likely come from the company's own competitiveness rather than industry beta.

Defensive thinking shifts to AI applications rather than traditional defensive sectors

In addition to continuing to allocate AI hardware, Goldman Sachs also proposed a new defensive strategy.

The report believes that when market risk appetite declines, instead of avoiding the technology sector, it is better to focus on software, IT services, and internet companies that are creating new business opportunities through AI. Goldman Sachs pointed out that generative AI is giving rise to new enterprise service demands such as AI consulting, data infrastructure construction, and cybersecurity, and the profitability of some software and IT service companies is expected to benefit from AI tools that enhance development efficiency and reduce costs.

At the same time, the market's previous concerns about AI undermining content value are easing. Goldman Sachs believes that AI is more likely to become a new tool for enhancing commercialization efficiency and improving operational efficiency, rather than simply replacing existing businesses, thus improving the growth logic of some internet and digital content companies.

Overall, Goldman Sachs believes that in the second half of the year, Asian technology investments should still adhere to the AI theme, but the allocation strategy needs to be more balanced: on the offensive side, continue to focus on AI infrastructure and hardware supply chains with improving prosperity, while on the defensive side, pay attention to software and IT service companies that can create new demand and enhance efficiency through AI, balancing growth and defensiveness in a more volatile market environment.