After the Slowdown in AI Trading, Goldman Sachs Predicts Tech Giants May Make a Comeback in the Second Half of the Year

Source: JIN10 Data

At the beginning of 2026, AI trading trends were volatile, but Goldman Sachs stated that mega-cap tech stocks, which had been hit by market rotation, may see a turnaround later in the year.

The “Magnificent Seven” stocks had previously been the main driving force behind AI trades, but their subsequent performance lagged behind the S&P 500 Index. Goldman Sachs expects that the returns brought by AI will continue to spread from mega-cap companies to a wider range, but analysts pointed out that three catalysts may reactivate the market leadership of Meta (META.O), Microsoft (MSFT.O), Amazon (AMZN.O), and Alphabet (GOOGL.O) in the second half of 2026.

Analysts said: “In the short term, the divergence in returns among mega-cap cloud service providers will likely persist, but we see three catalysts that could mark a turning point later this year.”

Accelerating AI revenue growth

If companies report growth in AI-related revenues, it will help ease market concerns about excessive spending.

Analysts said: “Accelerated growth in AI-related revenue will strengthen investor confidence in the ultimate returns of continued capital expenditures and the long-term profitability potential of mega-cap cloud providers.”

They added that growth in AI-related revenues can also provide investors with visibility into the monetization path of AI, proving that the huge investments are justified.

Goldman Sachs pointed out that the latest round of earnings reports from large tech companies has reflected this. All mega-cap cloud service providers have raised their capital expenditure forecasts, but stock price reactions have varied.

Microsoft fell due to weak cloud business growth, Amazon declined as its sales guidance matched expectations, while Meta surged thanks to robust revenue outlook and strong performance in its advertising business.

Slowing growth in AI expenditures

Goldman Sachs expects that the growth rate of AI capital expenditures will peak in 2026 and then slow down, which will allow investors to better assess the profitability potential of these companies.

Currently, spending by mega-cap cloud providers is expected to reach 92% of operating cash flows, higher than the levels seen during the dot-com bubble.

Analysts said: “A slowdown in capital expenditure growth will allow investors to see the path to a bottoming free cash flow, which will help revalue these companies based on earnings.”

Decreased momentum in cyclical stocks

The stock market has seen a rotation from tech stocks to cyclical stocks, and recent concerns about AI reshaping the global economy are shaking the status of traditional tech leaders.

Analysts said: “If the macroeconomic environment shifts from accelerating growth to slowing growth, it should prompt investors to seek opportunities again among structural growth stocks.”

Goldman Sachs economists expect the U.S. economy to maintain growth in the first half of the year, thus supporting cyclical stocks that are usually less associated with AI. They expect these tailwinds for economic growth to peak by mid-year and start to slow down in the second half of 2026.