The golden era of AI trading is quietly drawing to a close, with market rotation signals becoming increasingly clear.

In his latest report, Goldman Sachs veteran trader Natasha Tiwana has warned of a fundamental shift in the momentum structure of the AI theme—within the momentum factor, the semiconductor and AI complex has moved from the long side to the short side, with the software sector replacing it as the largest weight in short-term momentum.

At the same time, Goldman Sachs is advising investors to turn their attention to areas that have been neglected by the market: hard asset exposure such as European and Japanese banking stocks, gold miners and copper miners, as well as hedge positions related to French political risk.

This strategic shift comes against the backdrop of a violent deleveraging in the market during August 2026. The Goldman Sachs High Beta Momentum Portfolio (GSPRHIMO) fell 12% in a single week, while the AI long-short hedge portfolio suffered a 10% decline in five days. Goldman Sachs noted that the number of single-day declines of more than 5% in the momentum factor in 2026 has already exceeded the total of the past five years combined, forcing the market to seek broader diversification beyond the AI narrative.

AI Trading Enters a More Nuanced Phase

Goldman Sachs has made it clear that the AI trade is not over, but its composition, momentum characteristics, and margin of safety are being rewritten in real time.

The report notes that the market debate is rapidly shifting from "who are the winners of massive capital expenditure" to "who are the winners of widespread AI adoption," driven by the continued decline in computing costs. In this context, Goldman Sachs recommends a more tactical approach to AI beneficiaries, focusing on opportunities where there is a significant divergence between price and earnings per share (EPS), with the storage chip (GSTMTMEM) and data center (GSTMTDAT) sectors offering the most compelling value.

Nvidia's second-quarter earnings report is the most important near-term catalyst, with the dense September conference season providing further support. At the AI application level, this week's partnership announcements between MRNA and MRK have sparked broad interest in healthcare AI, with the breadth of earnings estimate revisions for related beneficiaries (GSXGHDDD) improving noticeably, indicating growing investor enthusiasm for AI-driven drug discovery.

Momentum Factor Quietly Reshuffles, Software Replaces Semiconductors

The structural reorganization within the momentum factor is one of the most notable signals of this cycle.

Goldman Sachs data shows that the overlap between 12-month winners and 3-month winners has fallen to multi-year lows, while the overlap between 12-month winners and 3-month losers is near historical highs. Specifically, the software sector has become the largest weight in the short-term momentum long basket (GSXUHMO3), while the semiconductor and AI complex has moved into the short basket (GSXULMO3).

Goldman Sachs believes this reshuffling of the long-short structure reflects investors' deep reassessment of the next phase of market leadership, which has kept factor volatility persistently elevated. In this environment, demand for sophisticated hedging tools has risen noticeably, with investors preferring factor hedge portfolios over simple index instruments to manage exposure.

European and Japanese Banks: Rate Dividend Meets Valuation Discount

Within the logic of "broadening" allocations, Goldman Sachs has placed European and Japanese bank stocks at the core of its recommendations.

The report notes that over the past month, the market has unwound its pricing of Federal Reserve rate hikes, while interest rate expectations in Europe and Japan have diverged from those in the US. In this context, the European bank index (SX7E) and the Japanese bank stock basket (GSXAJMEB) benefit from improved net interest margins (NII) in a "higher for longer" rate environment, while non-interest income fundamentals continue to improve—with strong fee income growth, improving efficiency ratios, and attractive shareholder return potential.

Data shows that Japanese bank stocks have outperformed both the TOPIX index and the Japanese semiconductor sector over the past three months, with lower volatility. European banks overall trade at a discount of approximately 15% to their US counterparts, and Goldman Sachs sees the most attractive value opportunity in Europe as Greek bank stocks—whose valuations are converging toward their eurozone core peers but still offer a discount of about 10%, with additional upside potential from M&A. Notably, positioning in European bank stocks is currently at its lowest level in nearly two years, opening a window for contrarian allocation.

Gold Miners and Copper Miners: Clear Catch-Up Logic for Hard Assets

Goldman Sachs also holds a positive view on hard assets, providing specific valuation support for its stance.

The gold miner basket (GSXGOLDM) has risen 32% within the month but remains approximately 12% below its historical high, with a forward price-to-earnings ratio of just 11 times—a discount of about 20% to its five-year average. Goldman Sachs believes that expectations of a weaker dollar stemming from the US Treasury's expanded bond buyback program will drive the next leg up for gold miners. Additionally, Goldman Sachs' derivatives team has noted rising demand for gold as a year-end safe-haven hedge, with a digital option expiring in December 2026—paying out if gold miners rise more than 5% while the S&P 500 falls below 4%—quoted at approximately 6% (mid-price 4.25%).

As for copper miners, copper prices hit a record high this week, but the copper miner basket (GSXGCOPP) has lagged both the commodity itself and its solid fundamental earnings since February, with the main drag coming from sentiment spillover from escalating Middle East tensions and the AI sector selloff. Goldman Sachs believes the tight supply-demand microstructure is supportive, and should the Fed pivot dovish, industrial metal exposure would directly benefit.

French Political Risk: An Underappreciated Tail Exposure

Goldman Sachs has also specifically flagged French political risk as a potential disruptive factor that the market has overlooked.

The spread between French and German government bonds (OAT-Bund spread) has been widening since early June, reaching a cyclical high of approximately 85 basis points, yet the French domestic stock basket (GSXEFRDO) has so far remained largely unaffected. Goldman Sachs warns that this calm may not be sustainable, as French domestic equities trade at the 90th percentile of their five-year valuation range, implying that current pricing reflects virtually no election uncertainty premium.

Goldman Sachs points out that with a dense political calendar ahead (including the MEDEF summer conference on August 27 and Justice Minister Darmanin's summer gathering on August 30), headline risk could escalate as early as next week. Historical data shows that during periods of political uncertainty, the correlation between French domestic stocks and credit spreads increases sharply, with their sensitivity to domestic risk far greater than that of the CAC index.

September Will Be the Key Window for Testing Rotation Persistence

Goldman Sachs concludes that all current signals point in the same direction: the market is being forced to move beyond the single AI narrative toward broader diversification.

The quiet rotation of the momentum factor toward software, the structural buying in European and Japanese banks (particularly the residual discount in Greek banks), the still-undervalued gold miners and lagging copper miners, and the severely underpriced French political risk premium together paint a picture of a deep restructuring of the market landscape.

Goldman Sachs emphasizes that the "passive gains" phase of the AI trade has ended, with the only remaining excess return opportunity lying in tactically buying stocks with excessive divergence between price and EPS trajectory. September's earnings calendar and conference season will ultimately determine whether this adjustment is merely a healthy position-clearing exercise or the beginning of a more enduring style shift.