Goldman Sachs is signaling a major shift in investment strategy for 2026, suggesting that the artificial intelligence-driven rally in mega-cap tech stocks may be losing steam as cyclical sectors emerge as the bigger opportunity. While investors remain fixated on AI and the tech giants that have dominated market gains, Goldman’s analysts are pointing toward industrials, materials, consumer discretionary, and real estate as the sectors poised for the strongest earnings growth next year.
According to Goldman’s Thursday report, the firm expects economic acceleration in 2026 to boost earnings per share (EPS) growth most significantly in cyclical sectors. Real estate companies are forecast to see EPS growth surge from 5% in 2025 to 15% in 2026, while consumer discretionary is expected to jump from 3% to 7%. Industrial companies face an even more dramatic rebound, with EPS growth projected to accelerate from 4% to 15%.
In contrast, the information technology sector—home to AI powerhouses—is expected to see EPS growth moderate from 26% in 2025 to 24% in 2026. This deceleration suggests that much of AI’s near-term earnings potential may already be priced into current valuations. Goldman’s analysts noted last month that the market may have already incorporated most of the potential gains from artificial intelligence.
Market dynamics are already beginning to reflect this transition. Goldman observed in a Friday report that cyclical stocks have outperformed defensive names for 14 consecutive trading days through Thursday—the longest streak in over 15 years. However, analysts believe this outperformance still doesn’t fully capture the firm’s optimistic growth outlook, with market positioning suggesting investors expect GDP growth closer to 2% versus Goldman’s 2.5% forecast.
The backdrop for this shift includes Goldman’s expectation of overall US economic acceleration in 2026, driving a 12% rise in S&P 500 earnings per share. The firm’s forecast also incorporates easing tariff pressures, which would particularly benefit cyclical sectors sensitive to trade dynamics.
These projections arrive amid ongoing debate about whether the stock market has entered a speculative bubble fueled by AI enthusiasm. The S&P 500 has climbed 16% this year, with the “Magnificent Seven” megacap tech stocks now representing roughly one-third of the index’s weight. Nvidia, the AI chip maker and world’s most valuable publicly traded company, has surged 30% in 2025 alone, exemplifying the AI-driven rally that Goldman now suggests may be maturing.
Key Quotes
At the sector level, we expect the 2026 acceleration in economic growth will boost EPS growth most in cyclical sectors including Industrials, Materials, and Consumer Discretionary
Goldman Sachs analysts wrote this in their Thursday report, signaling a fundamental shift in where they see investment opportunities moving away from AI-focused tech stocks toward traditional economic sectors.
Despite the cyclical rebound and widespread economic optimism in our client conversations, the market does not appear to be fully pricing the likely economic acceleration in 2026
Goldman’s analysts noted this disconnect between their growth forecasts and current market positioning, suggesting that investors remain overly focused on AI stocks while undervaluing cyclical opportunities that could benefit from AI-driven productivity gains.
Our Take
Goldman’s forecast represents a sobering reality check for AI investment mania. While artificial intelligence remains transformative, the bank’s analysis suggests we’re entering a “second derivative” phase where AI’s impact shifts from direct tech stock appreciation to broader economic benefits. The 14-day cyclical outperformance streak isn’t just a technical anomaly—it’s a market rotation reflecting institutional recognition that AI’s value may increasingly accrue to its users rather than its creators. This doesn’t mean AI is overhyped, but rather that the easy money in AI stocks may be behind us. Nvidia’s 30% gain this year, while impressive, pales compared to previous years, supporting Goldman’s thesis. The real question is whether traditional sectors can effectively deploy AI to justify their projected earnings acceleration, or whether this represents premature rotation away from the technology still in its growth phase. For investors, this suggests a barbell strategy: maintain exposure to AI infrastructure leaders while increasing allocation to cyclical beneficiaries of AI-driven productivity.
Why This Matters
This analysis from Goldman Sachs represents a critical inflection point for AI investment narratives that have dominated financial markets for the past two years. The suggestion that AI stocks may have already priced in most potential gains challenges the prevailing wisdom that artificial intelligence represents an unlimited growth opportunity for tech investors.
For the broader AI industry, this signals a maturation phase where the initial euphoria gives way to more measured expectations about near-term profitability and market impact. The moderation in tech sector EPS growth—even while remaining strong at 24%—suggests that AI monetization may take longer than markets initially anticipated.
The shift toward cyclical sectors also reflects AI’s broader economic impact: as artificial intelligence tools become embedded across industries, the productivity gains and economic acceleration may benefit traditional sectors more than the AI providers themselves. This could mean that AI’s most significant value creation happens not in tech companies’ balance sheets, but in the operational improvements across manufacturing, real estate, and consumer businesses.
For investors and businesses, this represents a strategic pivot moment—suggesting diversification away from concentrated AI plays toward sectors positioned to benefit from AI-enabled economic growth. It also raises questions about whether current AI valuations, particularly for companies like Nvidia, can sustain their momentum without corresponding earnings acceleration.