Stocks that have been singled out amid investor concerns about artificial intelligence disruption have, in many cases, posted robust recent quarterly results, Goldman Sachs analysts say.
Over the past three months, software stocks have plunged by double-digit percentages as market participants have grown anxious about the launch of new AI models that replicate services offered by those firms. That selloff has not been confined to software firms alone; it has rippled across a range of industries as Wall Street weighs the possible broad effects AI might have on businesses from data analytics to logistics.
Despite these market apprehensions, a number of the companies at the center of the AI debate reported strong fourth-quarter outcomes and in some instances saw analysts raise current-year earnings-per-share estimates. Goldman analysts Ben Snider and Ryan Hammond attributed those upward revisions in part to solid sales growth and expanding profit margins, which underpinned the quarter's results.
External macro factors also supported revenue performance. A weaker U.S. dollar together with a resilient overall economy helped lift revenues of firms in the benchmark S&P 500 by 7% year-on-year in the fourth quarter, the analysts noted. Yet they cautioned that the robust near-term figures have not ended investor discussion over the risk of longer-term earnings disruption from AI, writing that "regardless of this near-term strength, investors continue to debate the risk of long-term earnings disruption from AI."
At the same time, plans for substantial capital spending on AI by major technology companies such as Meta and Microsoft have heightened concern over the timing of returns on those investments. Goldman analysts stated that consensus forecasts now point to a combined $660 billion of U.S. hyperscaler capital expenditure in 2026 - an amount 22% and $120 billion higher than estimates at the start of earnings season a few weeks ago.
Rising capital investment has coincided with a slowdown in corporate cash returns. Share buybacks by S&P 500 companies declined, falling by 7% compared with a year earlier in the fourth quarter, marking a third-straight quarter of stagnation in buyback activity. The Goldman analysts said they expect that the growing scarcity of free cash flow and reduced buybacks will increase the premium investors place on companies that focus on returning cash to shareholders.
In addition to the figures and trends highlighted above, the discussion around whether equities such as MSFT represent value today has been raised in market commentary, reflecting the broader investor focus on valuation in the face of sizable AI-related investments and shifting cash-return dynamics.
Key takeaways
- Software stocks fell by double-digit percentages over the past three months amid concerns about new AI models.
- Many companies reported strong Q4 results and saw positive analyst EPS revisions, supported by sales growth and margin expansion.
- Rising hyperscaler capex and declining buybacks may shift investor preference toward firms that return cash to shareholders.
Risks and uncertainties
- Long-term earnings disruption from AI remains an open debate among investors and analysts.
- Heavy capital spending by major tech firms creates uncertainty about when those investments will generate consistent profits.
- Reduced share buybacks and constrained free cash flow could alter investor valuations, especially for companies less focused on returning cash.