After a round of selling and the implementation of elections, the position structure has been cleared, and bears need to cover their positions. The resilience of the growth sector still exists.

In recent weeks, the market sentiment towards the AI sector has clearly turned negative. The results of the mid-term elections have led some investors to believe that the worst-case scenario they feared for this sector has now materialized.

However, a strategist at Goldman Sachs holds a different view. The valuations of related targets have already corrected, and there is a need to close short positions; the final outcome of the election may actually accelerate capital expenditure rather than suppress it.

Rich Priwrotzki, the head of equity trading in Goldman Sachs Europe ( Rich Privorotsky ), believes that the AI sector has been “sold to extreme”. His view for fund managers is that the fundamentals are still strong, the uncertainty surrounding elections has subsided, and the portfolio composition is much clearer now.

Before the voting on Tuesday, the question that investors were most concerned about was whether a Democratic victory would curb the wave of data center expansion. The market paid particular attention to the Texas governor election, as approximately a quarter of all data center planning projects in the United States are located in that state. The defeat of the current Republican governor, Greg Abbott, to Gina Inohosa means that the local regulatory environment may become stricter.

However, Privorotsky's logic is as follows: Corporate decision-makers may decide to advance their capital investment to 2027, taking advantage of the current approval processes before any adjustments to regulatory frameworks are made to complete strategic transactions. By 2029, when a new president takes office, tax policies may change, and administrative regulations as well as merger and acquisition reviews are likely to become stricter. Major hyperscale cloud providers will choose to act swiftly to implement their plans.

He also put forward a view: if the expansion of computing power in the future is restricted, the value of the existing computing power that has already been built and put into operation will increase accordingly. Theoretically, this will be beneficial to large-scale cloud providers such as Amazon, Microsoft, and Alphabet which have already deployed a large amount of computing power.

In his trading notes sent to clients on Wednesday, Privorotsky also acknowledged that delays or suspensions of some data center projects would drag down what investors refer to as the "shovel-selling" sector, which includes manufacturers of chips, cooling systems, power equipment, and energy service providers.

However, these sectors have already experienced corrections before. For example, the Philadelphia Semiconductor Index ETF ( SOX ) has fallen by 20% in the past month.

This research report uses AMD's impressive third-quarter report as evidence that the current AI capital expenditure cycle still possesses resilience. The guidance for the fourth quarter is very strong, with an expected year-on-year growth rate increase of another 27%. Privorotsky believes that limited expansion on the supply side may not eliminate demand; instead, it could lead to higher prices lasting longer.

If the construction of data centers is delayed, large-scale cloud providers may experience a situation where orders exceed demand. However, Privorotsky believes that this has already been reflected in the currently low valuations. For emerging cloud providers such as Nebius and CoreWeave, the investment conclusions are more complex and depend to a large extent on whether long-term contracts for computing power have been signed and whether the computing power has already been established.

Finally, Privorotsky believes that once the elections are held and uncertainty decreases, it will be difficult for high volatility, represented by the panic index VIX, to continue. If volatility falls rapidly as he predicts, and since volatility is negatively correlated with stock market indices, then the overall market index is expected to rise; AI and AI related stocks account for nearly half of the weight in these indices.

Credit attribution:Global Market Report cites trading notes sent to clients by Rich Priwrotzki, the head of Goldman Sachs' European equity trading department.