Goldman screens defensive stocks as uncertainty clouds the AI rally

Investors concerned that the artificial intelligence trade may lose momentum may find defensive opportunities in health care and consumer staples stocks, according to Goldman Sachs.

“After months of intensifying pressure from interest rates, concerns about the rising cost of capital have caused the equity market to downgrade its growth expectations,” Goldman Sachs analysts led by Ben Snider wrote Friday. “A sharp reduction in investor positioning has amplified equity market moves. During the past two weeks, our Cyclicals versus Defensives pair has declined by 6%, and rates and credit markets have reflected similar pressures.”

Goldman screened for defensive companies that have recently underperformed but could be poised to catch up if investors reduce their earnings-growth expectations. The strategy comes as rising energy prices and interest rates cloud the economic outlook, while higher financing costs raise questions about the durability of the AI infrastructure buildout.

Goldman estimates that AI capital spending currently accounts for roughly half of S&P 500 earnings growth, although that contribution is expected to diminish as spending growth slows. The bank’s base case still anticipates continued earnings growth, but it sees the potential for a catch-up trade in consumer-facing stocks as lower energy prices and falling interest rates support household spending in 2027. Investors seeking protection against a weaker outcome should focus on defensive industries with “quality” attributes, Goldman said.

Tyson Foods stands out with an 11% trailing four-quarter free cash flow yield, the highest among the companies on Goldman’s screen. The food and beverage company’s shares have fallen nearly 17% over the past six months, according to FactSet data, while the stock also offers a 3.72% dividend yield.

CVS Health also made the list, supported by a 9% free cash flow yield. Its shares have gained 15% year to date but fallen 15% over the past three months. The company offers a 2.88% dividend yield, according to FactSet.

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