Despite the downturn in the artificial intelligence (AI) market, Goldman Sachs has identified a promising area for investors: software companies poised to benefit from emerging AI technologies. While the broader tech sector faces macroeconomic challenges and industry-specific headwinds, certain segments of AI-related stocks are showing resilience. In particular, "phase 3" AI stocks, which include software firms, have experienced positive sales revisions year-to-date. This contrasts with the downward trend seen in phase 2 stocks, primarily related to AI infrastructure. The bank believes that as AI costs continue to decrease, investors will increasingly seek out companies generating AI-enabled revenues. Additionally, phase 4 stocks, expected to benefit from labor productivity gains, have also seen negative revisions but remain optimistic about long-term potential.

Resilience in AI-Driven Software Companies

The financial landscape for AI-related investments has been tumultuous, yet Goldman Sachs highlights a silver lining in the form of software companies. These firms, categorized as phase 3 AI stocks, are demonstrating robust sales growth despite the overall market volatility. The bank notes that these companies are likely to see increased demand as AI technology becomes more affordable and accessible. Investors are encouraged to consider this segment due to its relatively inexpensive valuation compared to historical averages and the potential for higher returns on new capital.

In greater detail, Goldman Sachs points out that expected consensus sales for 2026 have been revised upward by 0.3% for phase 3 stocks. This is in stark contrast to phase 2 equities, which have faced downward revisions of 0.3%. Notable companies within the phase 3 category include Palantir Technologies, Cloudflare, SentinelOne, Axon Enterprise, Snowflake, and CrowdStrike. These firms are projected to achieve compound annual sales growth rates ranging from 22% to 29% between 2024 and 2026. The bank's optimism underscores the belief that these companies will be key beneficiaries of the ongoing AI revolution, offering a safer investment option amidst market uncertainty.

Challenges for AI Infrastructure Stocks

The decline in AI infrastructure stocks, or phase 2 equities, reflects broader concerns within the tech sector. Macro volatility and competition from China's tech giants have contributed to a challenging environment for these companies. Despite initial gains driven by the rapid expansion of AI infrastructure, recent trends suggest a shift in investor sentiment. Hardware providers, including semiconductor manufacturers, have faced significant pressure as concerns about overvaluation and reduced hardware demand intensify. Even strong earnings reports have failed to stabilize stock prices, with leading firms like Nvidia experiencing substantial declines.

Goldman Sachs attributes the downturn in phase 2 stocks to several factors, including rising efficiencies in AI that could reduce the need for extensive hardware investments. The Philadelphia Semiconductor Index has dropped nearly 15% since mid-February, signaling a bearish outlook for chipmakers. However, the bank remains cautiously optimistic about the future, noting that an improvement in economic data or changes in tariff policies could reverse recent trends. Meanwhile, phase 4 stocks, which stand to gain from AI-driven productivity improvements, are beginning to show promise. Companies like Amazon, Cognizant Technology Solutions, and Iqvia Holdings are already reaping the benefits of enhanced productivity through AI applications, offering a glimpse into the next wave of AI advancements.