Goldman Sachs Research Report Analysis: Momentum Unwinding Shocks Global Stock Markets, AI Spending Boom Conceals Hidden Risks

Written by: Rita

TechFlow Guide

Global stock markets fell about 2% last week. Technology fell 5%, Japan fell 3%, Taiwan fell 6%, South Korea fell 9%.

The momentum retreat is still intensifying. Oil prices surged back above $88, and escalating tensions in the Middle East made the energy sector the only highlight.

But what Goldman Sachs really wants to say is another thing: the boom in AI capital expenditure is accumulating risks. If the profitability of tech giants declines before AI returns arrive, the stock market will suffer a double blow. The Goldman Sachs strategy team provided a five-year allocation framework, underweighting technology and overweighting real assets, but also admitted that the cost of comprehensive reduction in the short term is too high, so they gave five compromise solutions.

Market Overview: Momentum Retreat, Energy Rebound

Global stock markets fell about 2% last week. The technology sector led the decline, with a drop of about 5%. The momentum factor has consistently underperformed the broader market in recent weeks, which is the core driver of this decline.

At the regional level, Asia was hit the hardest. South Korea fell 9%, Taiwan fell 6%, Japan fell 3%. Europe was relatively resilient, with the STOXX 600 index falling only about 2%. Goldman Sachs noted that earnings revisions in Europe are accelerating, and the divergence with the US is narrowing.

Escalating tensions in the Middle East pushed Brent crude back above $88/barrel, and the energy sector outperformed the broader market last week. Defensive sectors also performed well, as the market is shifting from growth stocks to value and defensive stocks.

Hidden Risks of the AI Capex Boom

The Goldman Sachs strategy team added an important reminder in this report.

Global financial assets have performed strongly over the past three years, with stocks being particularly outstanding. As a result, the "World Portfolio" is heavily biased towards US assets, stocks, and the technology sector. The boom in AI capital expenditure increases the risk that declining profitability of large tech stocks will drag down stock market returns, especially before AI returns have materialized.

Goldman Sachs conducted a long-term backtest using a "Regime Neutral Portfolio". The results show that the regularly rebalanced "Regime Neutral Portfolio" outperformed the "World Portfolio" over the long term. Currently, this portfolio points to lower stock weights, lower technology weights, and higher real asset allocation.

The key to the problem is timing. The cost of underweighting stocks and technology in the short term is too high; missing a few days of gains could underperform the entire year. The solution given by Goldman Sachs is to hedge inflation and diversify risk through other means while maintaining innovation exposure.

Five Strategies: How to Hedge Risk While Maintaining Innovation Exposure

Goldman Sachs provided five specific strategies.

Strategy 1: Improve Quality. While maintaining technology exposure, tilt towards quality factors, preferring companies with high gross margins, strong cash flow, and low leverage. Such companies are more resilient when growth slows, while still benefiting from the long-term AI trend.

Strategy 2: Increase Real Assets. Allocate to commodities, infrastructure, and inflation-linked bonds. Such assets can provide protection during phases of unexpected inflation upside, and inflation is also a market side effect that AI Capex expansion may catalyze.

Strategy 3: Diversify Geographically. The weight of US tech stocks in the global portfolio is already too high. Europe and Japan have valuation discounts, which can form a buffer; if US tech stocks correct, non-US markets are expected to gain relative returns.

Strategy 4: Long Volatility. This direction is not simply betting on market decline, but using option tools to hedge tail risk. Once the momentum retreat evolves into large-scale deleveraging, volatility strategies can play a hedging role.

Strategy 5: Selective Participation in Innovation. Not all technology targets have allocation value. Goldman Sachs judges that long-term AI winners may not be companies currently leading in market cap size; application-layer companies capable of completing AI commercialization monetization, including software and cybersecurity companies, have more potential.

TechFlow Perspective

The core information of this Goldman Sachs weekly report is actually hidden in the "Balancing Innovation and Inflation" section, rather than the market review at the beginning.

How long will the momentum retreat last? Historically, when the momentum factor falls from extreme crowded levels, it usually takes several months to clear. Asian markets, especially South Korea and Taiwan, have fallen significantly, but technical indicators have not yet shown clear bottom signals.

The return on AI capital expenditure is a real hidden danger. Goldman Sachs did not say the AI bubble is about to burst, but proposed a more subtle risk: money has been spent, but not yet earned back. Before the efficiency improvements brought by AI technology implementation are truly reflected in corporate profits, if the marginal return on capital expenditure declines first, tech stock valuations will bear double pressure.

This is why Goldman Sachs' five-year portfolio recommends underweighting technology and overweighting real assets. However, it is difficult to execute directly in the short term, and comprehensive reduction positions carry high opportunity costs. The core idea of the five strategies is to maintain participation but adjust the holding structure. Maintain AI-related asset exposure, relying on quality targets, real assets, regional diversification, and volatility tools to balance portfolio risk.

Disclaimer

This article is a compilation and interpretation by TechFlow Research of a third-party brokerage research report (Goldman Sachs, July 20, 2026). The ratings, target prices, earnings forecasts, and related judgments cited in the text are the views of the brokerage's analysts, represent only the position of their affiliated institution, do not represent the views of TechFlow Research, and do not constitute any investment advice.

The market has risks, decisions need to be independent. This article should not be used as a basis for buying or selling any securities.