A Goldman Sachs partner, Rich Privorotsky, has warned that a wave of artificial intelligence-fueled "creative destruction" is sweeping through global industries in real time, representing a fundamental test of corporate moats. From last week's impact on the software sector to early this week's pressure on insurance and wealth management stocks, followed by real estate services and logistics later in the week, AI is aggressively testing which companies possess truly defensible competitive advantages. Initially seen as a positive for equity markets, AI is now prompting a "sell first, ask questions later" sentiment, accelerating sell-offs even without clear catalysts beyond AI concerns. Privorotsky characterizes this as a moat examination: Can a company's business withstand technological disruption? Could an army of robots displace the existing enterprise? Must companies race to invest or acquire, or face being replaced?
Privorotsky further emphasized the need to monitor trigger signals from Commodity Trading Advisors (CTAs) within major US stock indices. Goldman Sachs currently estimates that CTAs could sell between $1.5 billion and $2 billion worth of US equities over the coming week.
Software sector valuations are under pressure. Privorotsky suggests that AI is not creating easy gains but is instead exposing entities attempting to rely passively on existing advantages. In many areas once considered to have strong moats, technological progress is rapidly eroding fortresses built on experience and knowledge work, allowing new entrants to pose swift challenges. When AI concerns unsettle market sentiment, the terminal value of software and technology sectors is called into question, representing a core issue for current markets.
Based on his trading experience, Privorotsky notes that valuation multiples are the most difficult metric to anchor; once questioned, the process is hard to stop. Currently, public company valuations have retreated from over 30 times earnings (blended forward 24-month estimates) to just above 20 times, while private investment portfolios often maintain much higher valuations. Consequently, this turbulence is propagating from public markets to the private sphere, further impacting private credit, particularly the leveraged loan market.
Market signals indicate a growth shock. Over the past week, US Treasury yields have declined while cyclical stocks have been sold off relative to defensive stocks. Goldman Sachs notes the market dynamic feels like a short-term growth shock. The yield curve is flattening, and bonds continue to advance. US January CPI came in at 2.4% year-over-year, below expectations, with core CPI falling to a four-year low. Fading inflation concerns align with the narrative that AI will disrupt multiple industries faster than anticipated. The ultimate outcome could be outright deflation in some sectors as entities reliant on economic rents lose pricing power.
Investors should seek genuine moats. In this environment, Rich Privorotsky advises focusing on companies with real moats and tangible assets. The aerospace sector appears timely, with Airbus-type exposure being noteworthy. Industrial stocks should perform well, but selectivity is key, favoring companies benefiting from investment cycles rather than just short-cycle cyclicals. Tangible assets are a long position, although chasing the recent surge in commodities is not advisable. He is positive on European REITs/long German residential real estate but avoids office REITs. Bank stocks appear vulnerable, facing a quadruple threat: in Europe, they represent a crowded long trade; they price in little risk from AI disruption or net interest margin compression; a weaker US dollar in a disinflationary regime is unfavorable for the rate curve; and in the US, prediction markets indicating a over 30% probability of a Democratic sweep significantly increase regulatory risk.
CTA selling triggers are approaching. Privorotsky stressed vigilance regarding CTA trigger points for US indices. In North America, the most significant selling is expected not in the S&P 500 but in the Nasdaq 100. The S&P 500 has already breached its 50-day moving average (6895) and a short-term CTA threshold (6911). The positive is that selling volume remains modest. Goldman Sachs estimates CTAs will sell $1.5-$2 billion of US stocks in the next week. Furthermore, the S&P 500 remains about 110 points above a medium-term threshold (6723); breaching this level would accelerate the pace of selling.
Privorotsky stated that as AI lowers barriers to entry daily, this is a market where winners and losers are diverging. While he cannot predict the exact shape of tomorrow's shipping industry, he is certain that terminal valuation multiples are under structural scrutiny. The current environment favors companies with genuine moats and tangible value. Emerging markets remain a relatively clearer safe haven, and trading in other global regions should continue to drive relative outperformance.