New Delhi

Investors are likely to increasingly look beyond the artificial intelligence trade as extreme volatility in AI infrastructure stocks raises the appeal of consumer experience companies, high-quality "compounders" and potential mergers and acquisitions (M&A) targets, according to Goldman Sachs.

In its latest report, the investment bank said these three themes offer exposure to growth opportunities with minimal correlation to its AI baskets and the momentum factor, which has been heavily influenced by the AI trade. Goldman Sachs expects continued near-term challenges for the AI infrastructure Momentum trade, citing elevated volatility, positioning and a lack of a favourable catalyst.

The momentum factor recorded annualised three-month volatility of 36 per cent, the highest level in its 45-year history outside recessions. Goldman Sachs said the sharp swings have encouraged investors to seek opportunities unrelated to AI. At the same time, correlations across S&P 500 stocks have fallen to historical lows, helping keep index volatility relatively subdued despite elevated volatility in individual stocks.

The first theme comprises 36 companies focused on physical consumer experiences, including movies and entertainment, casinos and gaming, hotels, resorts and cruise lines, and leisure facilities. Goldman Sachs said consumer spending on experiences accelerated to 6 per cent year-on-year growth in the first quarter of 2026, compared with 2 per cent growth in broader services spending.

The group has outperformed the equal-weight Consumer Discretionary sector by 17 percentage points year-to-date, while its relative valuation remains below its 10-year average. The physical nature of these businesses also offers some insulation from potential AI disruption.

The second theme is a group of 15 "compounders" with strong earnings growth, high returns on invested capital, robust free cash flow conversion and healthy balance sheets. The median stock in this group has grown earnings per share more than twice as fast as the median S&P 500 stock over the past three years, with analysts expecting the growth advantage to continue.

Despite this superior earnings performance, the compounders have underperformed the equal-weight S&P 500 by 7 percentage points year-to-date and trade at a historically low valuation premium.

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The third theme comprises potential M&A targets. Announced US M&A activity has reached USD 1.2 trillion year-to-date, up 32 per cent from a year earlier, while the number of deals has risen 12 per cent. Goldman Sachs said its basket of 71 potential targets has outperformed the equal-weight S&P 1500 by 8 percentage points since the end of the first quarter, although valuations outside biotechnology do not yet reflect a significant acquisition premium.