AI Sector Surges as Tech Giants Beat Earnings Expectations

Goldman Sachs analysts have noted that recent earnings reports from major technology companies in the artificial intelligence (AI) sector have surpassed expectations. This positive performance has boosted investor confidence, indicating that the recent market pullback presents a good opportunity for investors to reallocate their portfolios towards the AI sector.

Over the past two years, the AI sector has been a significant driver of market growth. However, the sector has faced challenges in 2025, with the emergence of DeepSeek in January raising questions about the necessity of substantial investments by U.S. companies in building AI systems. This led to a significant drop in the stock prices of chip manufacturers and AI-related companies. Additionally, the trade war initiated by Donald Trump has fueled concerns about a slowdown in U.S. economic growth and potential recession.

Despite these challenges, recent financial reports from tech giants such as Alphabet, Microsoft, and Meta have improved market sentiment. Alphabet's earnings report showed strong profitability despite concerns about AI spending. Microsoft's report demonstrated robust execution and sustained demand signals in an uncertain environment.

Led by Louis Miller, Goldman Sachs analysts stated in a report, "The market sentiment towards AI themes is currently very pessimistic. We believe this presents an opportunity to buy into the AI sector at a lower price." Miller further explained that the valuation of all AI-related stocks is currently lower than at the beginning of the year and last year. From a long-term earnings perspective, AI stocks are more affordable compared to the previous AI boom, approaching levels seen before the launch of ChatGPT, except for software stocks, which are more sensitive to interest rates.

Combining the performance and earnings of the 'broad AI stock basket,' these stocks remain affordable while maintaining stable earnings. Goldman Sachs' U.S. TMT AI basket includes companies focused on developing AI or driving new technology adoption. Last summer, these stocks underperformed the market by 19% due to concerns about investment returns, but rebounded to highs in January. Since 2025, the basket has declined by over 20% due to the impact of DeepSeek and the Trump trade war, but has partially recovered in the past two weeks.

Additionally, the overall market sentiment is improving, with tariff risk factors gradually being digested. Analysts predict that economic data over the next month will not show significant tariff impacts and expect U.S. consumers to continue spending, unless prices rise sharply or unemployment increases, which are not expected in the short term.