July Returns! Goldman Sachs: Storage stocks with "poor performance" are most attractive, finance and hard assets become new hotspots

Goldman Sachs warns that cracks are starting to appear in AI momentum, advising investors to be highly cautious about the widening valuation gap between stock prices and earnings per share. Meanwhile, capital is starting to flow into previously overlooked sectors, with European and Japanese bank stocks, gold miners, and copper mining stocks—so-called hard assets—gradually emerging as new market hotspots.

This week’s market performance was described by Goldman Sachs trader Natasha Tiwana as a typical “deleveraging move,” the intensity of which caught the market off guard after believing the July sell-off was in the past.

Goldman Sachs’ High Beta Momentum Basket (GSPRHIMO) fell 12% this week, while its AI Hedge Basket dropped 10% over five days.

Goldman Sachs notes that the unwinding of the current momentum strategy closely mirrors the underlying logic seen in July. Although leverage in the AI sector has retreated from extreme highs, trend-driven capital continues to prompt indiscriminate and rapid “buying the dip” activity.

Goldman Sachs believes that the current round of position unwinding, combined with resilient AI fundamentals, sets a healthier stage for the market to take on risk anew in September.

Meanwhile, the narrative behind AI trading is shifting rapidly: With computing power costs continuing to decline, the market’s focus has shifted from “who are the winners of large-scale capital expenditures” to “who are the true beneficiaries of the coming AI mass-application wave.”

AI Valuation Gap: Storage and Data Centers Most Tactically Attractive

Goldman Sachs believes AI trading is far from over, but its structure, momentum profile, and safety margins are being rewritten in real time.

At the tactical level, Goldman Sachs suggests trading around opportunities highlighted by a wide disconnect between stock prices and earnings per share, noting that the valuation gap in the storage sector (GSTMTMEM) and data center sector (GSTMTDAT) is the most prominent, presenting the most attractive tactical opportunities right now.

Based on Goldman’s comparison of weighted average net profit expectations and weighted average market capitalization, the above two sectors’ profit recoveries have yet to be fully reflected in their stock prices.

NVIDIA’s Q2 earnings report is the next key catalyst, followed by a busy September industry conference season that will provide further support to the market.

At the same time, the AI application layer is gradually gaining market attention. This week, Moderna (MRNA) and Merck (MRK) announced a partnership to develop AI-assisted drugs, sparking widespread interest in the healthcare AI track.

Data from Goldman Sachs shows that the breadth of earnings revisions for healthcare AI beneficiaries (GSXGHDDD) is expanding, and the improving sentiment among professional investors is starting to attract generalist investors to lay out AI drug R&D-related opportunities.

Momentum Factor Rotation: Software Takes Over From Semiconductors

Goldman Sachs points out that the internal structure of the momentum factor is undergoing its most significant reshuffling in years.

Data shows that the number of days in 2026 with the momentum factor falling over 5% in a single session has already surpassed the total over the past five years combined.

Of particular note, the overlap between 12-month and 3-month winners has fallen to a multi-year low, while the overlap between 12-month winners and 3-month losers is near a historical high—meaning that last year’s market winners are rapidly becoming recent underperformers.

In terms of factor structure, software has replaced semiconductors as the largest weight in the 3-month momentum long basket (GSXUHMO3); meanwhile, semiconductors and the AI composite have shifted to the short basket (GSXULMO3).

The structural divergence between short- and long-term momentum reflects investors’ wide ranging disagreements over “the next stage of market leadership,” fueling ongoing demand for more refined hedging tools.

Bank Stocks Rise: European and Japanese Financials Face Structural Opportunities

Goldman Sachs believes that as the market reassesses expectations for the Federal Reserve to hold rates higher for longer, the strategic allocation value of European and Japanese bank stocks is coming to the fore.

Beyond rate logic, Goldman further values European and Japanese banks for their improved non-interest income fundamentals. Robust fee income growth, better efficiency ratios, and considerable shareholder return potential together make the case for allocation.

Over the past three months, Japanese bank stocks have outperformed both the TOPIX and Japanese semiconductor sector, with lower volatility. Sticky inflation and expectations of rate hikes provide support for further upside.

In Europe, overall European bank stocks are trading at about a 15% valuation discount to US bank stocks.

Within the region, Goldman’s top pick is Greek banks, whose valuations are converging towards core Euro Area peers but still reflect about a 10% discount, along with potential upside from possible M&A activity.

Notably, current positioning in European bank stocks has fallen to a two-year low, further strengthening their allocation appeal.

Hard Assets Rally: Gold Miners and Copper Stocks Still Have Room to Catch Up

Hard assets are becoming another main theme of this round of market divergence.

Goldman Sachs had previously been bullish on gold miners, citing reasons such as warming Chinese demand and rising expectations of Fed rate cuts. This basket is up 32% for the month, but still about 12% below all-time highs, with current valuations at only 11 times forward P/E—about 20% below the five-year average.

Goldman Sachs believes that an expanded US Treasury buyback program will weaken the dollar, becoming the main driver for the next leg higher for gold miners. Meanwhile, ongoing geopolitical risks are supporting the use of long gold positions as a hedging tool through year end.

As for copper, copper prices hit record highs this week, supported by US tariff risks and tight market supply outside the US.

However, since February, copper mining stocks have consistently lagged both copper prices and their own solid profit fundamentals, with the drag mainly coming from escalating Middle East tensions and the underperformance of AI trades.

Goldman Sachs points out that at the micro level, supply-demand tightness is supportive; at the macro level, the FOMC minutes from July indicate there is still insufficient majority support for rate hikes. Any dovish repricing by the Federal Reserve would be a positive for industrial metals, suggesting copper miners have clear room for a catch-up rally in their share prices to align with earnings growth.

French Political Risk: An Underestimated Tail Risk

Goldman Sachs has also turned its attention to a risk not yet fully priced in by markets—domestic French politics.

Since this summer, bearish bets against French government bonds have been rising, with the OAT-Bund spread widening to about 85 basis points—a stage high. However, domestic French equity baskets had mostly been calm until volatility emerged in recent days.

Goldman Sachs believes French equity valuations are at the 90th percentile of the past five years. Markets have not factored in a risk premium ahead of clear election uncertainty.

The upcoming political events calendar will be an important observation window, including the August 27 MEDEF summer meeting and the August 30 Justice Minister Darmanin’s summer gathering.

Historical data show that domestic French equity baskets react far more to political risk than the CAC40 index; during periods of political uncertainty, their correlation with credit spreads rises significantly, implying considerable valuation contraction risk.