Podcast Summary: "The New AI Trades" — Exchanges (Goldman Sachs), Feb 17, 2026

Episode Overview

In this episode of Goldman Sachs Exchanges, host Alison Nathan talks with Ryan Hammond, portfolio strategist at Goldman Sachs Research, about the dramatic shifts beneath the surface of U.S. equity markets in early 2026. They focus particularly on the recent sharp selloff in software and related sectors, the role of AI-driven disruption, and what history and current market trends suggest about the future of the ongoing U.S. bull market.

Key Discussion Points and Insights

1. Major Selloff in Software and Related Stocks

• Scale of Declines:
  • A basket of software stocks is down about 25% in 2026 year-to-date and over 30% since last October.
    "These stocks traded at a forward earnings multiple of about 35 times...as of the latest readings, they trade at about 20 times forward earnings. So a huge valuation derating." — Ryan Hammond (00:42)
• Investor Sentiment Shift:
  • Valuations have swiftly transitioned from optimism about 15–20% growth to marked skepticism (5–10% growth expectations).
  • The valuation premium relative to the rest of the market has shrunk from over 100% to around 20%, nearing levels last seen during the Global Financial Crisis.
  • "Investors have gone from valuing this group of stocks in the 15 to 20% growth range to 5 to 10% growth in the span of a couple of days." — Ryan Hammond (01:40)

2. Broader Sector Impact: AI Disruption Risk

• Spillover to Other Industries:
  • Sectors hit include publishing, advertising, media, legal services, IT consulting, and insurance—industries not historically tied to software performance.
  • Common thread: perceived risk of business model disruption from AI.
• Recent Triggers:
  • Google's Genie 3 (gaming/ad impacts), Claude's cowork tool (legal/services plugins), and insurance products using AI to compare quotes all spurred selling pressure.
  • "It's clear that AI disruption risk is really the common thread throughout a lot of these industries selling off in recent weeks." — Ryan Hammond (02:14)

3. Why Now? — Timing of the Selloff

• Immediate Catalysts:
  • The introduction of targeted, industry-specific AI applications prompted investors to reassess long-term prospects for impacted firms.
• Investor Mindset:
  • Equity is valued on discounted future cash flows; AI advances cloud "terminal" valuations.
  • "Investors are questioning the long term sustainability of some of these business models." — Ryan Hammond (03:17)
  • "It seems like investors are saying these stocks traded at high valuations and have been popular for a long time. Let's reposition our portfolios first and then start to work through some of the questions later." — Ryan Hammond (03:51)

4. Lessons from Past Disruptions

• Historical Analogues:
  • Newspaper industry in the 2000s (rise of the internet) and tobacco in the 1990s (regulatory shifts).
  • Two key patterns emerged:
    • Price declines played out over years, not days.
    • Recovery occurred only after earnings stabilized.
  • "The prices of those industries bottomed more closely to periods when earnings started to stabilize." — Ryan Hammond (04:58)
• Current Parallel:
  • Recent rebounds in some software stocks tied to better-than-expected earnings announcements.
  • The process of adaptation and stabilization for AI-disrupted sectors may span years.

5. Near-Term vs. Long-Term Fundamentals

• Crucial Role of Earnings:
  • As long as companies deliver on earnings, confidence may return. Uncertainty lingers about long-term growth assumptions.
  • "As long as these companies are still delivering on earnings and growing, then investors are going to be able to have more confidence again in them." — Alison Nathan (06:01)
• Long-Term Value Under Scrutiny:
  • Even strong near-term results may not offset fears that AI could erode future cash flows and terminal value.

6. Complexities of the AI Trade in 2026

• Capital Expenditure (CapEx) Surge:
  • Large U.S. hyperscalers spent ~$400B on capex in 2025; 2026 expectations jumped from $540B to $660B following strong earnings and guidance—a 60% YOY growth rate.
  • "You've added $120 billion of incremental capex expectations in the span of a couple of weeks." — Ryan Hammond (07:13)
• Market Dispersion:
  • Varied reactions to capex: some AI-heavy stocks rallied, others fell, reflecting investor focus on monetization prospects.
  • "No longer is it going to be one big group of stocks powering the index higher. You will see periods where some stocks are doing better or worse than others." — Ryan Hammond (09:19)
• Monetization and Funding:
  • As capex rises, it's consuming a larger share of operating cash flows (up to 90% in 2026). Companies are increasing debt for expansion, reducing buybacks.
  • "You're getting to territory where it's exhausting a lot of their cash flows from their underlying businesses." — Ryan Hammond (09:38)

7. Rotation and Broadening Market Leadership

• Shift from AI Leaders to Other Sectors:
  • Despite volatility in software, cyclicals (consumer discretionary, transports, industrials) are outperforming.
  • Non-US equities and small caps also outpacing previous leaders.
  • "We would say the defining word of the 2026 market so far has been broadening." — Ryan Hammond (11:01)
• Macro Tailwinds:
  • Economic growth is expected to accelerate in early 2026, favoring cyclicals over defensives.

8. Outlook for the US Bull Market

• Continued Upside, But At a Slower Pace:
  • Goldman sees further upside in the S&P 500, but return rates are expected to moderate.
  • Earnings growth is robust across both the AI sector and broader market, with Q4 earnings tracking at 12% growth.
  • Elevated valuations and high index concentration raise the bar for further big gains.
  • "You can have companies come into the top of the index that are not there today. Companies may drop out, but the dynamism of the S&P 500 we think should continue to lead to some modest upside from here." — Ryan Hammond (13:34)

Notable Quotes & Timestamps

• On the speed and severity of the software stock selloff:
  • "A group of software stocks is down about 25% to start the year... most of the selling pressure has really occurred in the last week or two." (Ryan Hammond, 00:42)
• On AI-driven disruption across sectors:
  • "AI disruption risk is really the common thread throughout a lot of these industries selling off in recent weeks." (Ryan Hammond, 02:14)
• On investor psychology and disruption:
  • "Let's reposition our portfolios first and then start to work through some of the questions later." (Ryan Hammond, 03:51)
• On the critical role of earnings amid disruption:
  • "The prices of those industries bottomed more closely to periods when earnings started to stabilize." (Ryan Hammond, 04:58)
• On the pace of market rotation and broadening:
  • "The defining word of the 2026 market so far has been broadening." (Ryan Hammond, 11:01)
• On the outlook for US equities:
  • "Earnings... should give you a very strong underpinning for continued equity market upside. But high multiples, high concentration, all of that means the starting point is one where the bar is a little bit higher for big gains." (Ryan Hammond, 13:19)

Timestamps of Key Segments

• 00:42 – Magnitude and context of software stock declines
• 02:08 – Extension of AI disruption to other sectors
• 03:17 – Specific AI product launches triggering moves
• 04:24 – Lessons from the history of market disruptions
• 06:01 – Role of earnings in restoring investor confidence
• 07:01 – CapEx surge and the intricacies of the current AI trade
• 09:38 – Funding of AI expansion and emerging leverage concerns
• 10:58 – Rotation and broadening in equity market leadership
• 12:26 – Big picture: prospects for the ongoing US bull market

Conclusion

This episode delivers a thorough analysis of recent market turmoil tied to AI disruption, untangling the interplay between company fundamentals, investor behavior, and broader macroeconomic shifts. While risks are rising for previously high-flying sectors, the underlying message is one of continued dynamism: the S&P 500’s leadership is evolving, and the bull market, underpinned by solid earnings, could well persist though with increasing complexity and more modest returns.