Goldman Sachs: As AI Momentum Wanes, European and Japanese Bank Stocks and Hard Assets Like Gold Stocks Become the Next Main Trading Focus

The golden age of AI trading is quietly coming to an end, and signals of sector rotation are becoming increasingly clear.

Natasha Tiwana, a senior trader at Goldman Sachs, warned in her latest report that the momentum structure of the AI theme has fundamentally shifted — the semiconductor and AI composite sectors in the momentum factor are moving from long to short, with the software sector replacing them as the largest weight for short-term momentum.

At the same time, Goldman Sachs recommends that investors turn their attention to areas previously neglected by the market: European and Japanese bank stocks, gold miners and copper mining stocks for hard asset exposure, as well as hedging strategies related to French political risk.

The backdrop for this strategic shift is a dramatic deleveraging event that occurred in the market in August 2026. The Goldman Sachs High Beta Momentum Portfolio (GSPRHIMO) dropped 12% in a single week, while the AI long-short hedge portfolio fell 10% over five days. Goldman Sachs points out that the number of times the momentum factor has suffered daily losses of more than 5% in 2026 has already surpassed the total for the previous five years, indicating the market is being forced to seek broader diversification beyond the AI narrative.

AI Trading Enters the Era of Fine-Tuned Operations

Goldman Sachs makes it clear that AI trading is not over, but its makeup, momentum characteristics, and margin of safety are all being rewritten in real time.

The report notes that the focus of market debate is rapidly shifting from “who are the winners of large-scale capital expenditures” to “who will win in the large-scale adoption of AI,” driven by the continued decline in the cost of computing power. Against this backdrop, Goldman Sachs suggests employing more tactical approaches for AI beneficiaries, with a focus on opportunities where there’s a significant divergence between price and Earnings Per Share (EPS), particularly in the memory chips (GSTMTMEM) and data center (GSTMTDAT) segments, which stand out for their high cost-performance ratio.

Nvidia’s Q2 earnings report is set to be the most important catalyst in the near term, followed by a busy season of industry conferences in September to provide further support. In terms of AI applications, the partnership announcement between MRNA and MRK this week has drawn the market’s attention to healthcare AI, with related beneficiaries (GSXGHDDD) seeing notably positive earnings estimate revisions. General investor interest in the AI drug development track is clearly on the rise.

Momentum Factor Quietly Reshuffles; Software Replaces Semiconductors

The structural reshuffling within the momentum factor is one of the most noteworthy signals of the current cycle.

According to Goldman Sachs data, the overlap between 12-month winners and 3-month winners has fallen to multiyear lows, while the overlap between 12-month winners and 3-month losers is near historic highs. Specifically, the software sector has become the largest weight for short-term momentum longs (GSXUHMO3), while semiconductor and AI composite sectors have shifted to the short side (GSXULMO3).

Goldman Sachs believes this reshuffling of long and short structures reflects a deep re-evaluation of next-phase market leadership by investors and has resulted in sustained high factor volatility. Under these conditions, the demand for nuanced hedging tools is clearly rising, and compared with simple index tools, investors prefer to use factor-based hedging portfolios to manage exposure.

European and Japanese Bank Stocks: Rate Dividends Combined with Valuation Discounts

In the context of "broadening" allocations, Goldman Sachs lists European and Japanese bank stocks as a core recommendation.

The report points out that in the past month, the market has already withdrawn Fed rate hike expectations, while rate expectations in Europe and Japan are diverging from that of the US. Against this backdrop, the European banking index (SX7E) and Japanese bank portfolio (GSXAJMEB) benefit from improved Net Interest Margin (NII) in a “higher for longer” rate environment, while non-interest income fundamentals remain healthy—fee income is growing strongly, efficiency ratios are improving, and shareholder return potential is considerable.

Data shows that Japanese bank stocks have outperformed the TOPIX and Japanese semiconductor sector over the past three months, with lower volatility. European bank stocks trade at about a 15% discount to US peers, and Goldman Sachs’ top value opportunity within Europe is Greek bank stocks — their valuations are converging with eurozone core peers but still have an approximate 10% discount, with additional upside potential from M&A. Notably, current positioning in European banks is at a two-year low, opening a contrarian window of opportunity.

Gold Miners and Copper Mining Stocks: Clear Catch-Up Logic for Hard Assets

Goldman Sachs is equally constructive on hard asset sectors and provides concrete valuation support.

The gold miner portfolio (GSXGOLDM) is up 32% this month, but still about 12% below its historical high, with a current forward P/E of only 11x—roughly a 20% discount to the five-year average. Goldman Sachs believes that the US Treasury’s expansion of its Treasury buyback program, which is expected to weaken the dollar, will drive the next leg higher for gold mining stocks. Additionally, Goldman’s derivatives team has noticed rising demand in the market for gold as a year-end hedging tool: a dual digital option, expiring Dec 2026, that pays if gold miners rise over 5% and the S&P 500 falls over 4%, is priced at about 6% (mid-market 4.25%).

For copper miners, copper prices hit an all-time high this week, but the copper mining portfolio (GSXGCOPP) has lagged persistently behind both the commodity itself and its solid earnings since February. This underperformance is mainly due to sentiment spillover from Middle East tensions and sell-offs in AI stocks. Goldman Sachs believes the tight supply-demand microstructure is supportive, and once the Fed turns dovish, industrial metal exposure will benefit directly.

French Political Risk: An Underestimated Tail Exposure

Goldman Sachs also specifically highlights French political risk as a potential tail event that has been overlooked by the market.

The spread between French and German government bonds (OAT-Bund spread) has been widening since early June, now reaching a cyclical high of about 85 basis points, but domestic French stock portfolios (GSXEFRDO) have largely been unaffected so far. Goldman Sachs warns that this calm may not last; valuations of French domestic stocks are now at the 90th percentile of the past five years, meaning current pricing almost entirely ignores any election risk premium.

Goldman points out that with a crowded upcoming political calendar (including the August 27 MEDEF summer conference and the August 30 summer gathering of Justice Minister Darmanin), related headline risks may rise as early as next week. Historical data shows that during periods of political uncertainty, French domestic stocks’ sensitivity to credit spreads rises sharply and responds to domestic risk much more strongly than the CAC index.

September: The Key Window to Test the Sustainability of Rotation

Goldman Sachs concludes that all current signals point in the same direction: the market is being forced out of a single AI narrative into broader, more diversified positioning.

The quiet rotation of momentum factors toward software, structural buying of European and Japanese bank stocks (especially Greek banks with remaining discounts), still-undervalued gold miners and lagging copper miners, and deeply discounted French political risk premiums collectively paint a picture of profound market regime reconstruction.

Goldman Sachs emphasizes that the “easy win” era of AI trading has ended; the only remaining area for excess returns lies in tactical buying of individual equities where price and EPS trajectories diverge significantly. The September earnings season and event calendar will ultimately determine whether this adjustment is merely a healthy position shakeout or the beginning of a more enduring market style shift.