A version of the S&P 500 that did not contain AI briefly outperformed traditional indices this year, but now, as investors shift to other sectors of the market, the two are almost on par.
A proprietary index launched by Goldman Sachs, which tracks stocks from the S&P 500 that have been excluded from those classified as “AI Enablers,” has risen by 12.4% so far this year as of October 22, slightly higher than the S&P 500’s 12% increase during the same period. With tech stocks rebounding in trading on Monday, this Goldman Sachs index is now almost on par with the S&P 500.
Technology and companies related to AI account for about 45% of the S&P 500. For many years, this high weight has driven the index upward, but recently it has become a burden; the technology sector of the S&P 500 fell by about 7% this month, while other sectors performed relatively strongly.
Investors are no longer favoring the debt and stocks issued by companies such as CoreWeave and Oracle. The stock price of Meta Platforms fell by nearly 7% on Thursday, following the company's announcement of plans for additional substantial capital expenditures and the issuance of extra shares.
The companies that provide electricity and equipment for the construction of AI also suffered heavy setbacks – companies such as GE Vernova, Bloom Energy, Vistra, and Quanta Services all experienced significant declines during recent sales.
Earlier this year, Goldman Sachs jointly launched this indicator with Standard & Poor's. Starting from the S&P 500, the bank first excludes companies that are considered to be AI enablers, and then processes the remaining companies using the weighting method of the S&P 500 index.
AI Transactions Lose Momentum
For most of this year, the index excluding AI has lagged behind the S&P 500, as investors continued to favor chip manufacturers, cloud computing companies, and other enterprises that benefit from large-scale AI spending. However, this advantage is narrowing and disappeared last week.
At the same time, investors are turning to defensive sectors. State Street Consumer Staples Select Sector SPDR ETF, State Street Health Select SPDR ETF, State Street Utilities Select Sector SPDR ETF, and other ETF sectors have risen by 7% to 10% this month. The energy sector has also seen a 10% increase, but this is more related to the war in Iran.
Some analysts suggest continuing to hold in companies that are not AI in order to achieve diversification and protect against further declines in tech stocks. Oppenheimer Technical analyst Ari Wald stated in a report on October 24th: "Over the past two weeks, the pendulum has once again tilted towards non-AI exposures."
Oppenheimer Currently, the two industries that are favored are business services and insurance. Last week, the company upgraded its position in these two industries to 'overweight' and recommended Republic Services, Cintas, Verisk Analytics, Broadridge Financial Solutions, MetLife, and Arthur J. Gallagher.
Berkshire Hathaway is also profiting from the rotation of tech stocks. The company's Class B shares have risen by 8% this month, but so far this year, they are still lagging behind the S&P 500.
Berkshire operates a wide range of business activities, including the token issuance by insurance giant Ge and the railway sector represented by Burlington Northern Santa Fe. It also holds a stock portfolio worth $364 billion, which includes investments in companies such as Apple, Coca-Cola, Alphabet, Bank, of, and America. If the tech sector drags down the S&P 500, such a diversified portfolio may help Berkshire continue to outperform the broader market.
Trivector Research believes that "non-technology compound growth stocks" also have potential. The healthcare giant Eli Lilly is one such example. Driven by weight loss drugs, the stock has risen by 22% this year. The company also has more projects in development, including a next-generation obesity drug, which Lilly plans to submit for approval to FDA at the beginning of 2027.
Cruise line operator Viking Holdings has also shown resilience. The company stated during its August financial report conference call that 40% of its river cruise capacity and 60% of its sea cruise capacity have been booked for 2027. The company told investors, "Based on recent events, we see that customers are showing resilience and continue to book for the 2027 season and beyond."
Viking The stock price has risen by 15% this year, but there may still be room for further increase. The average target price on Wall Street is $109, which is higher than the recent price of around $82. Barclays recently upgraded its rating for this cruise line operator to 'overweight' with a target price of $102, citing the company's 'attractive risk/reward ratio'.
