Episode summary
Al Is Becoming a Stock Picker's Market
The Markets
· · Guests: Peter Callahan
Summary
AI and tech are still in a bullish trend, but Peter Callahan says the trade has become much more selective. He argues that the market has moved from a broad semiconductor-led AI rush into a “stock picker’s market,” with more dispersion across software, infrastructure, cybersecurity, and data tools. In his view, the AI theme is still intact, but investors are now sorting winners from losers based on who can help companies deploy AI, protect it, or turn it into real productivity gains.
Callahan says the evidence from corporate conversations is increasingly about use cases, productivity, and new revenue opportunities, but the key question is how much spending is being converted into results. He sees investor concern less about the end of AI and more about the pace and linearity of deployment, especially as data-center build-outs and rates add noise to the story. He also notes that software is splitting into better-positioned names and those still trying to prove product-market fit in the new model layer.
On the macro side, he says higher rates have compressed tech valuations, though earnings growth has so far kept the sector afloat. His preferred areas are semiconductors, where he is watching for a turnaround into 3Q earnings, and consumer internet and experiences, where he thinks September’s weakness may offer an opportunity.
Key takeaways
- Peter Callahan says the AI trade has broadened beyond semiconductors into software, cybersecurity, data infrastructure, and companies that help deploy AI.
- He says the market has shifted into a stock picker’s market, with dispersion replacing the broad, correlated rally seen earlier in 2026.
- Callahan says investor worry is less about AI failing and more about the pace of deployment, data-center build-outs, and the capital intensity of the cycle.
- He says rising rates have compressed NASDAQ multiples about 20% this year and pushed earnings growth to do more of the work.
- Callahan favors semiconductors into 3Q earnings and sees a potential opportunity in consumer internet and live experiences after September weakness.
Notable quotes
“what you're starting to see now is much more of a stock picker's market”
“the trade has broadened out”
“the market writ large is getting what they want from a productivity narrative”
“investors feel pretty good about the end point, but the linearity has gotten a little bit more, uh, uncertain”
“You're going to catch me using the word nuanced again, dispersion, right”
How the episode opens
This is The Markets. I'm Chris Hussey, and today is Wednesday, September 30th, and I'm here on the Goldman Sachs trading floor with Pete Callahan, who is our US technology, media, and telecommunications sector specialist within FICC and Equities. Pete, thanks so much for joining us again on The Markets.
Thanks for having me. All right. Let's get to it, because we had kind of a meh summer.
When you look at the 10 biggest tech stocks, half of them were up, half of them were down. Is the AI trade getting long in the tooth? What are customers telling you?
Yeah, listen, I think tech and AI story is still intact, but you're right, it's, like, nuanced now, right? There's a lot more dispersion, which could be euphemism for bad market breath, right? But what you're starting to see now is much more of a stock picker's market.
We're kind of year three, year four of the AI cycle. There's a lot of things to be excited about. There's also a lot of questions that investors are asking.
And so I do think the trend for tech is still higher. I still think earnings growth, valuations, and thematic tailwinds are on its side. But to your point, we can kind of go through these lulls after a really good start to the year, call it Jan through June.
We've kind of been in consolidation mode this summer, and I think it's a fair thing as investors sort of wrestle with the handful of AI puts and takes down the stretch of the year. Not to mention, of course, rates and oil and macro, and all of those are parts of the conversation today that were a little bit less so in the first half of this year. Yeah, I want to get into the macro, but before we do that let's keep exploring that AI trade for a little bit because is the complexion of the AI trade starting to change now?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai stock picking
- interest rates
- technology stock outlook
- software company dispersion
- semiconductor stocks
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Al Is Becoming a Stock Picker's Market” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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