While the AI trade continues to dominate headlines and drive market records, Goldman Sachs suggests investors look beyond the hype. The investment bank has identified stocks with strong fundamentals and earnings growth that are less sensitive to the AI trend. Companies like Eli Lilly, Fortinet, and Chewy are highlighted as examples of businesses with solid performance drivers independent of the current AI fervor.
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The artificial intelligence (AI) boom has captivated the stock market, pushing major indices like the S&P 500 and Nasdaq Composite to record highs. However, investors might be wondering if the market has become a one-dimensional "AI trade." Goldman Sachs, in a recent report, suggests that compelling investment opportunities exist beyond the realm of AI, focusing on companies with robust earnings growth and positive analyst revisions.
Goldman Sachs analysts highlighted a portfolio of Russell 1000 stocks that exhibit low price sensitivity to both the AI trade and the broader economic growth outlook. These selected companies have also recently experienced favorable upward revisions in their earnings estimates.
Key Stock Picks with Low AI Sensitivity:
- Eli Lilly (LLY): Despite a slight dip this year, Goldman Sachs estimates that only about 9% of Eli Lilly's recent returns are tied to the U.S. economic outlook and AI. Morgan Stanley maintains an overweight rating on the stock, with analyst Terence Flynn setting a price target of $1,344, implying a 26.2% upside. The drugmaker's strong performance is attributed to its diabetes and obesity drug Mounjaro, with sales consistently exceeding consensus expectations.
- Fortinet (FTNT): While cybersecurity stock Fortinet has surged 68.7% this year, Goldman Sachs attributes only 19% of its recent returns to the U.S. economic outlook and AI. BTIG analyst Gray Powell upgraded Fortinet to 'buy' following a strong Q1 earnings report, citing confidence in the company's ability to sustain mid-teens revenue growth.
- Chewy (CHWY): The pet food and supplies retailer Chewy has seen its shares tumble 37% this year. Goldman Sachs believes only 11% of its recent returns are driven by the AI trade and U.S. economic outlook. Despite the stock's performance, Wolfe Research included Chewy among its top internet picks, with analyst Shweta Khajuria maintaining an outperform rating and a price target of $39, nearly double the Friday closing price.
Goldman Sachs emphasizes that investors should prioritize equities with fundamental support from earnings growth and revisions, regardless of whether those earnings are influenced by AI or other positive market trends. This approach allows for diversification and investment in companies with solid underlying business performance, even amidst a dominant sector-specific rally.
