Goldman Sachs analysts advise investors worried about a slowdown in AI-related capital flows to consider defensive sectors, especially health care and consumer staples. In a note published on Friday, the bank outlined a weaker-market scenario in which quality stocks with stable cash flows could come into focus.
Background
Goldman Sachs says rising interest rates have put increasing pressure on markets in recent months, prompting investors to temper growth expectations. The analyst team led by Ben Snider pointed out that significant position reductions by investors have amplified equity market moves: their cyclicals-to-defensives basket fell about 6 percent over the past two weeks. Similar strains were visible in bond and credit markets.
The bank estimates that AI investments currently account for roughly half of the S&P 500’s rally, but expects that share to shrink if the pace of AI-related spending decelerates. Higher energy prices and financing costs, along with questions about the sustainability of the current pace of AI-infrastructure buildout, add to the uncertainty.
Stocks highlighted by Goldman Sachs
For investors seeking downside protection, Goldman Sachs recommends focusing on defensive industries and high-quality names that have recently underperformed the broader market. Examples that fit the bank’s screening criteria include:
- Tyson Foods: stands out with an 11 percent free cash flow yield, the highest on the list; the stock has fallen nearly 17 percent over the past six months, and its dividend yield is 3.72 percent.
- CVS Health: shows a 9 percent free cash flow yield; the stock is up 15 percent year-to-date but has lost 15 percent in the last three months, and its dividend yield is 2.88 percent.
Goldman Sachs notes these companies may offer defensive characteristics—strong cash conversion and dividend income—after recent underperformance.
Goldman Sachs’ base case and macro outlook
Despite outlining a defensive scenario, the bank’s base case continues to assume sustained earnings growth. Goldman Sachs’ macro team projects lower energy prices and a declining interest-rate path by 2027, which could support household consumption and create opportunities for previously lagging consumer-focused stocks to recover.
Why this matters for investors
The report underscores that a slowdown in AI-driven capital flows combined with higher costs could shift investment preferences toward quality, defensive holdings. For investors concerned about a market pullback, Goldman Sachs suggests that securities with solid free cash flow and dividend profiles in defensive sectors could offer relative resilience.
This article does not constitute investment advice; it summarizes Goldman Sachs’ analysis of risks and outlooks related to AI spending, energy prices and interest rates.
Tags: Goldman Sachs, Ben Snider, AI investments, S&P 500, Tyson Foods, CVS Health, energy prices, interest-rate path, investing.
