AI Is Becoming a Stock Picker's Market

PodcastGoldman Sachs The MarketsPete CallahanOct 2

The guest says the AI investment story remains intact, but widening differences among companies make stock selection more important as the cycle matures. Investment is broadening beyond semiconductors, while uncertainty about deployment and software companies' roles alongside AI models is shaping opportunities. He also discusses a roughly 40% market-implied chance of a Fed rate hike, pressure on Nasdaq valuations from higher yields, and the possibility of selectively returning to consumer services and experiences later in 2026.

Artificial Intelligence AI Infrastructure Semiconductors Technology Stocks Market Valuations Interest Rates

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Key Takeaways

The guest says the AI story remains intact as the cycle enters roughly its third or fourth year, but greater stock dispersion makes selection more important and AI investing broadens beyond semiconductors and capital spending. Investors are looking at infrastructure, security software, and tools that help organizations deploy AI, while the guest says deployment timing—especially building and activating data centers—remains uncertain and software companies that implement or secure AI appear better positioned than those relying on AI to improve their own products.

Rates are a pressure point across both tech and consumer stocks: the guest says 10-year yields were above 5.25% as the Nasdaq multiple compressed about 20% that year, while rates and oil weighed on consumer stocks in September. The market had priced in about a 40% chance of a Fed rate hike later that month, though incoming data could shift those odds; the guest said the consumer selloff could create an opportunity to reengage selectively in consumer services and experiences later in 2026.

TECHNOLOGY

AI Stock Selection — The guest argues that the tech and AI story remains intact, but greater dispersion is making stock selection more important as the AI cycle enters roughly its third or fourth year.

“Yeah. Listen, I think tech and AI story is still intact, But you're right. It's like nuanced now. Right…”—

AI Broadening — The guest says AI investing has expanded beyond semiconductors and capital spending to infrastructure and security software, as well as tools and companies that help organizations adopt and deploy AI.

“In the last couple of months, you've really started to see more focus up the stack…”—

ECONOMY

Fed Hike Odds — The guest says markets had priced in about a 40% chance of a rate hike at the Fed meeting later that month, and incoming macro data could shift those odds. That reflects market pricing, not a prediction that a hike will occur.

“Right now, the market has about a 40% chance of a hike priced in. So we'll see if that macro data tilts that one way or the other.”—

MARKETS

Nasdaq Valuation — The guest says the Nasdaq multiple compressed about 20% that year, with rates contributing as 10-year yields rose above 5.25%. Tech earnings growth remained intact, he says; rates added pressure to earnings rather than keeping investors out of tech.

“This year, you've seen Nasdaq multiple compress about 20%. Now there's a lot of things that drive that, but I think certainly rates is a piece of that…”—

FORECASTS

Consumer Recovery — Consumer stocks had one of their biggest months of underperformance in more than 10 years in September, weighed down by rates and oil. The guest says this could create an opportunity to reengage selectively in consumer services and experiences later in 2026.

“Consumer stocks have one of their biggest months of underperformance in over ten years in the month of September…”—

AI Stock Selection

The guest says the AI investment story remains intact, but growing dispersion and investor questions are making stock selection more important as the cycle matures.

AI Deployment And Software

Investment is broadening beyond semiconductors into infrastructure software, security, and tools that support adoption, while investors seek clearer evidence of AI productivity and deployment.

Software And AI Monetization

Investors see uncertainty around the pace of data-center deployment and how software companies will fit alongside AI models, with better prospects for firms enabling or securing AI.

Rates And Market Opportunities

Higher yields have pressured Nasdaq valuations, though earnings growth supports the tech outlook; the guest is watching semiconductors, consumer experiences, Fed expectations, and AI returns on investment.