Goldman Sachs: How to buy technology stocks in the second half of the year?

The AI market is entering a high-level oscillation, can tech stocks still be bought in the second half of the year? Goldman Sachs' answer is still: continue to be bullish, but shift from "buying the track" to "selecting companies". In its latest report, Goldman Sachs pointed out that there are no signs of a peak in the AI-driven tech cycle yet, and signals of supply exceeding demand and slowing technological evolution have not appeared. Goldman analysts believe that this cycle could become one of the largest and longest-lasting tech upturn cycles in history. After entering July, related stocks saw profit-taking, which the report characterized as a healthy adjustment after rapid price increases, rather than a reversal of trends. In terms of stock selection strategies, the report proposed three core themes: first, continue to be bullish on AI server and data center related hardware stocks; second, in sub-sectors where supply and demand are tightening, pay more attention to detailed evaluations of individual stock risks and returns; third, focus on software and IT service stocks that are harnessing the wave of AI disruption to explore new business opportunities when market risk preferences decline, as a defensive configuration. The AI cycle has not yet peaked, and adjustments are considered healthy pullbacks Goldman Sachs maintains an overall bullish view on the Asian AI supply chain. The report states that to determine whether the tech cycle is coming to an end, two signals are mainly observed: semiconductors and electronic components shifting from undersupply to oversupply, and slowing technological innovation causing industry competition to return to price-driven, rather than performance-driven. Currently, neither of these signals has emerged. Goldman believes that AI infrastructure investment is still in an expansion phase, and new applications such as physical AI and edge AI will continue to follow AI servers and data center construction, further extending the current tech cycle. Therefore, recent profit-taking on related stocks should be seen as a healthy adjustment after rapid price increases, rather than a fundamental reversal. At the same time, supply-demand tension is gradually shifting from hot areas like storage and optical communication to more semiconductor sub-industries, indicating that the industry's prosperity is expanding. Focus of investment in the second half of the year: transitioning from choosing the track to selecting individual stocks As many AI beneficiary sectors have experienced significant increases, Goldman Sachs believes that the investment logic for the second half of the year will gradually shift from "buying the right industry" to "selecting the right companies". The report suggests that companies worth paying attention to generally have several common features: can directly benefit from product price increases; have strong capacity to expand production and seize profit opportunities brought by supply-demand tension; the potential growth of their AI business has not been fully reflected in the market valuation; or have unique catalysts that have not been fully priced in by the market. In other words, after overall valuations have risen, future excess returns are more likely to come from company-specific competitiveness rather than the industry beta. Defensive strategies shifting towards AI applications, rather than traditional defensive sectors In addition to continuing to allocate to AI hardware, Goldman Sachs also proposes a new defensive strategy. The report suggests that when market risk preferences decline, instead of avoiding the tech sector, it is better to focus on software, IT services, and internet companies that are creating new business opportunities using AI. Goldman points out that generative AI is giving rise to new enterprise service demands such as AI consulting, data infrastructure construction, and network security, and the profitability of some software and IT service companies may benefit from AI tools that enhance development efficiency and reduce costs. At the same time, market concerns about AI weakening the value of content are easing. Goldman believes that AI is more likely to be a new tool for improving commercial efficiency and operational efficiency, rather than simply replacing existing businesses, so the growth logic of some internet and digital content companies is improving. Overall, Goldman believes that in the second half of the year, Asian tech investments should continue to focus on the AI theme, but allocation strategies need to be more balanced: on the offensive end, continue to focus on the AI infrastructure and hardware industry chain, where prosperity is continuing to improve, while on the defensive end, pay attention to software and IT service companies that can create new demand and improve efficiency through AI, balance growth and defensive aspects in a more volatile market environment.