AI Trading Era Ends: Goldman Sachs Warns of Widening Valuation Gap

Goldman Sachs is warning investors to remain vigilant about the widening valuation gap between stock prices and earnings per share. The firm believes that the era of effortless gains in AI trading has ended, and current excess returns are only available through precise buying on dips when stock prices significantly diverge from earnings.

The storage sector and data center sector offer the most attractive tactical opportunities at present, according to Goldman Sachs, with valuation gaps between weighted average net profit expectations and weighted average market capitalization being the most prominent. NVIDIA's second-quarter earnings report will serve as a key catalyst for the market, followed by the dense September season of industry conferences.

Goldman Sachs notes that factor rotation is shifting toward software, while European and Japanese bank stocks are emerging as new hotspots due to structural opportunities and robust fee income growth. Gold miners and copper mining stocks have room to converge with their earnings fundamentals, driven by a weaker U.S. dollar and persistent geopolitical risks.

In the past week, Goldman Sachs' High Beta Momentum Portfolio fell 12% while its AI hedge portfolio declined by 10%. The firm believes that this collapse is highly consistent with the underlying logic observed in July, and has laid a healthier foundation for the market to resume risk-taking in September.