Goldman Sachs(US:GS) Goldman Sachs·2026-02-24 14:20Investment Rating - The report suggests a pairing trade strategy to capitalize on the ongoing collapse of software stocks, indicating a cautious but strategic investment approach in the software sector [9][30]. Core Insights - The software sector is currently facing significant challenges, primarily due to disruptions from artificial intelligence, which is perceived as a "survival threat" [1][9]. - Goldman Sachs has introduced a new pairing trade (GSPUSFTX) that distinguishes between "quality" software stocks that are less likely to be replaced by AI and "poor quality" stocks that may face increased automation risks [9][30]. - The report highlights a notable divergence in valuation metrics, with the software industry's price-to-earnings (P/E) ratio decreasing from 51 times a year ago to 27 times currently, making it less expensive compared to other sectors [19][20]. Summary by Sections Software Sector Performance - The software sector's sales growth is projected to remain around 16% for both 2026 and 2027, indicating a shift in investor perception regarding its valuation compared to other industries [21][23]. - The report notes that the sales growth of the "quality" software stocks (GSTMTSOL) has more than doubled, while the "poor quality" stocks (GSTMTSOS) have stagnated since 2023 [13][19]. Valuation Metrics - The current P/E ratio of the software sector is 27 times, which is lower than that of media, automobiles, semiconductors, and capital goods sectors, indicating a more competitive valuation landscape [20][21]. - The report emphasizes that the valuation of software companies should be based on P/E rather than enterprise value to sales ratio, suggesting a recalibration of expectations in the market [19]. Investment Strategy - The pairing trade strategy aims to hedge against risks associated with companies facing existential threats from AI while capitalizing on those that benefit from AI advancements [9][30]. - This strategy is positioned as a potential platform for reducing portfolio diversification risks and navigating the current market volatility in the software sector [30].