Goldman Sachs Flags Defensive Stocks as AI Capital Spending Growth Shows Signs of Slowing

Goldman Sachs is advising investors worried about a potential pullback in the artificial intelligence trade to rotate toward health care and consumer staples stocks, citing rising interest rates, higher energy prices, and signs that AI-driven earnings growth may be peaking.

"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 analysts led by Ben Snider wrote in a note published Friday.

The bank estimates that AI capital spending currently contributes roughly half of S&P 500 earnings growth, but expects that share to diminish as spending growth slows — a projection that has fed growing unease on Wall Street about the durability of the AI infrastructure buildout.

The concern is reflected in recent market movements. Goldman's Cyclicals vs. Defensives pair declined 6% over the two weeks prior to the note, with rates and credit markets registering similar pressure, according to the analysts.

Investors seeking shelter from a weaker outcome "should focus on stocks in defensive industries with 'quality' attributes," the analysts wrote, particularly those that have recently lagged the broader market.

Several names cleared Goldman's defensive screen. Tyson Foods ranked at the top, posting an 11% trailing four-quarter free cash flow yield — the highest among the companies Goldman identified. Shares of the food and beverage company have fallen nearly 17% over the past six months, according to FactSet data, and the stock carries a 3.72% dividend yield.

CVS Health also made the list, supported by a 9% free cash flow yield. While the stock has gained 15% for the year, it has retreated 15% over the past three months. CVS offers a 2.88% yield, FactSet data shows.

Goldman's base case, however, still calls for continued earnings growth and does not assume an AI trade collapse. The bank sees the possibility of a recovery in consumer-facing stocks, driven by weaker energy prices and falling interest rates that its macroeconomic forecasters anticipate in 2027 — conditions that would bolster household spending and support beaten-down shares.

The defensive playbook comes amid a broader market reassessment of just how much longer AI-related capital expenditure can sustain the elevated earnings expectations baked into equity valuations. Higher financing costs have raised questions about whether hyperscalers and infrastructure providers can maintain the pace of spending that has underpinned much of the S&P 500's growth narrative over the past two years.

Whether the AI trade loses momentum gradually or more abruptly will likely depend on the trajectory of interest rates and the degree to which enterprise AI adoption translates into measurable productivity gains — two variables that remain genuinely uncertain heading into 2027.

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