AI stocks, like Nvidia, have driven the stock market with Nvidia alone accounting for 6.9% of the S&P 500 by index weight. A $1,000 investment in Nvidia in 2020 would be worth $13,449 now, with a $10,000 investment now worth $134,500. Goldman Sachs warns that the market may have already priced in much of the AI upside.

Goldman Sachs believes that the next earnings expansion won’t come from AI leaders but from traditionally cyclical sectors due to a stronger economy in 2026. Industries like Industrials, Materials, and Consumer Discretionary are expected to see significant gains as economic activity picks up. Cyclical stocks have begun outperforming tech peers, signaling a potential market shift.

As investors anticipate a market shift, small caps, blue-chip stocks, and megacap tech are showing different trends. Small caps led the rotation, while blue-chip stocks saw modest upside. Megacap tech moved lower, indicating a potential trimming of crowded AI trades. Earnings growth in the information technology sector is expected to remain modest.

Industrials, Materials, and Consumer Discretionary sectors are already showing positive signs of growth, with Industrials posting +20% blended EPS growth and Materials at approximately +17%. Consumer Discretionary is also positive, with big beats from companies like Amazon and GM. The market may see a shift towards cyclical businesses as traditional economic growth becomes a catalyst for earnings rebound.

Read more at Yahoo Finance: Goldman Sachs issues urgent take on stock market for 2026