When deciding whether to buy or sell stocks, it's good to get a wide range of perspectives. No one CEO or industry executive will be right about everything. But when the head of a major Wall Street bank speaks up about a tech sector sell-off, retail investors should pay attention.
On Tuesday, David Solomon, CEO of Goldman Sachs, spoke at a conference hosted by UBS. He expressed optimism about the overall U.S. economy and said the macro environment facing investors is "very good broadly."
But he sounded more skeptical about the current tech sell-off. The tech-heavy Nasdaq-100 index is down by around 2% year to date, underperforming the S&P 500 (^GSPC 1.52%), which is close to flat. Many well-known software-as-a-service (SaaS) stocks have been hit particularly hard due to fears that their business models are about to be disrupted by ever-more-capable artificial intelligence (AI) tools.
Let's look at what Solomon said about the AI software sell-off -- and consider how investors might want to respond.
Image source: Getty Images.
Goldman Sachs CEO: AI narrative is "too broad"
Solomon spoke to the conference about possible risks facing the stock market. He said he expects "a speed bump or recalibration or slowdown" at some point this year. And he also said that "what's going on with AI and technology" could create those kinds of short-term downturns and recalibrations.
However, he doesn't think it's appropriate to paint the industry with such a broad brush. "I think the narrative over the last week has been a little bit too broad," Solomon said. "There'll be winners and losers, and plenty of companies pivot and do just fine."
How to invest in software stocks during the AI boom
NYSEMKT: IGV
Key Data Points
If you believe that AI systems will inevitably disrupt and replace almost the entire software industry, then maybe now is a good time to avoid software stocks. But it's highly possible that, as often happens with transformations in the economy, some companies will adapt to AI and find new ways to make money.
Solomon's comments are a good reminder that the AI boom doesn't have to lead to a software bust. Many software companies could pivot to new products, business models, higher productivity, and new ways to profit by partnering with AI companies. Some are already using AI tools to enhance their products.
If you want to buy the dip on the software space, an easy way to do it is to buy the iShares Expanded Tech-Software Sector ETF (IGV 0.88%). This fund, which tracks the S&P North American Expanded Technology Software index, has delivered average annualized returns of 8.4% for the past five years. It gives you exposure to a diversified basket of 114 well-known software companies such as Microsoft, Palantir, and Salesforce. Its expense ratio is 0.39%. In the context of the current sectorwide slide, the ETF is down more than 20% year to date.
Past performance is no guarantee of future results, and Solomon's comments should not be considered as an endorsement of any individual stock or sector. But his assertion that the recent sell-off has been "too broad" can be read as a vote of confidence about the sector's prospects for a rebound. Despite this recent tech stock sell-off, there are strong reasons to believe that there are good buying opportunities in software.
