Investors grappling with the potential cooling of the artificial intelligence (AI) boom are advised by Goldman Sachs to bolster their portfolios with stocks in defensive sectors like health care and consumer staples. The investment bank's analysts, led by Ben Snider, noted that persistent pressure from rising interest rates has prompted a recalibration of growth expectations across the equity market. This, coupled with a significant reduction in investor positioning, has amplified market volatility.
Goldman Sachs estimates that AI capital spending currently accounts for roughly half of the S&P 500's earnings growth. However, they anticipate this contribution to wane as spending growth moderates. The bank's strategy for navigating this uncertainty involves focusing on 'quality' stocks within defensive industries, particularly those that have recently underperformed the broader market.
This defensive stance comes amid a cloudy economic outlook, influenced by escalating energy prices and climbing interest rates, which raise concerns about the sustainability of the AI infrastructure buildout due to increased financing costs.
Goldman Sachs highlighted specific companies that meet their defensive criteria:
- Tyson Foods: This food and beverage company stands out with a trailing four-quarter free cash flow yield of 11%, the highest among those screened by Goldman. Despite its shares declining nearly 17% in the past six months, Tyson Foods offers an attractive dividend yield of 3.72%.
- CVS Health: The health care giant also made the list with a 9% free cash flow yield. While its stock has seen a 15% gain year-to-date, it has experienced a 15% decrease in the past three months. CVS Health currently provides a 2.88% dividend yield.
Despite these defensive recommendations, Goldman Sachs' base case scenario still projects continued earnings growth. They foresee a potential rebound in consumer-facing stocks, supported by anticipated decreases in energy prices and interest rates by 2027, which are expected to boost household spending.
