Episode summary
The New AI Trades
Exchanges (Goldman Sachs)
· · Guests: Ryan Hammond
Summary
Software stocks have sold off sharply, with Ryan Hammond saying a group of software names is down about 25 percent to start 2026 and more than 30 percent from their October highs. He argues the move reflects a major valuation reset: those stocks fell from about 35 times forward earnings to about 20 times, while their premium to the rest of the market compressed from more than 100 percent to about 20 percent. He says investors are increasingly questioning whether fast-growing, high-margin businesses can sustain their growth rates in the face of AI-driven competition.
The selling has broadened beyond software into publishing, advertising, media, legal services, IT consulting services and insurance, which Hammond links to new, industry-specific AI applications from large language models. He says the key question is the terminal value investors should assign to these businesses, but believes earnings will determine when the pressure stops, just as in historical disruption episodes such as newspapers in the 2000s and tobacco in the 1990s.
On the broader AI trade, Hammond says the market is becoming more dispersed rather than driven by one uniform AI basket. He points to hyper scaler capex rising from about $400 billion last year to $660 billion in 2026 estimates, but says investors now care more about monetization and funding, including whether spending is eating into cash flows or pushing companies toward more debt. Even so, he thinks the S&P 500 has further upside, with earnings growth still healthy even as returns likely slow from the pace of the past few years.
Key takeaways
- Ryan Hammond says software stocks have rerated sharply, with forward earnings multiples falling from about 35 times to about 20 times as investors question growth durability.
- He says AI-disruption risk is spreading into publishing, advertising, media, legal services, IT consulting services and insurance as new tools hit those industries.
- Hammond argues earnings, not just headlines, will decide whether the selloff is overdone, citing newspapers in the 2000s and tobacco in the 1990s as historical analogs.
- He says the AI trade is becoming more selective, with capex rising but stock reactions depending on whether companies can prove monetization.
- Goldman Sachs Research still expects further S&P 500 upside, but Hammond says returns should come more from earnings than multiple expansion.
Notable quotes
“A group of software stocks is down about 25 percent to start the year”
“As of the latest readings, they trade at about 20 times forward earning. So, a huge valuation derating”
“AI-disruption risk is really the common thread throughout a lot of these industries selling off in recent weeks”
“The prices of those industries bottomed more closely to periods when earnings started to stabilize”
“the defining word of the 2026 market so far has been broadening”
How the episode opens
If you look at an index like the S&P 500, you'd think it's been a quiet start to the year for US stocks. But there've been seismic shifts under the surface with software stocks in particular moving dramatically. So, what's behind these moves?
And what do they tell us about the state of this long-running bull market? I'm Allison Nathan and this is Goldman Sachs Exchanges. Today I'm sitting down with Ryan Hammond, a portfolio strategist in Goldman Sachs Research.
Ryan, welcome back to the program. Thanks for having me. So, Ryan, let's start where the price action has been really volatile in recent days: software stocks.
Put some numbers around these views. Give us some context about what we've seen. Yeah.
A group of software stocks is down about 25 percent to start the year. Some of that selling pressure started earlier than 2026. These stocks are down more than 30 percent from their highs in October.
But most of the selling pressure has really occurred in the last week or two. If you think about it in a valuation context, these stocks are super popular among investors, in part because they're fast-growing, high-margin businesses. But that is coming under some scrutiny from investors.
And so, you know, a couple of weeks ago, these stocks traded at a forward earnings multiple of about 35 times because of those attributes. As of the latest readings, they trade at about 20 times forward earning. So, a huge valuation derating.
And when you think about it relative to the rest of the market, they went from trading at a premium of more than 100 percent to the rest of the market to just 20 percent today. And if you look historically, that valuation premium is now approaching levels you reached in the global financial crisis.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai disruption
- sector rotation
- equities
- trading themes
- investment outlook
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “The New AI Trades” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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