Nvidia (NVDA) and other first wave, artificial intelligence stocks may still face headwinds, but a shift to broader investment opportunities lies ahead for investors, said a Goldman Sachs analyst in a report. The top AI stocks will shift away from data center infrastructure plays to mainly software companies as monetization of new products unfolds, he said.
"We continue to believe that the AI trade will broaden and that stocks with AI-enabled revenues offer better risk/reward for new capital than stocks involved in AI infrastructure," said Goldman Sachs analyst Ryan Hammond in a report published late Thursday.
↑ X NOW PLAYING Stocks Tumble Ahead Of Jobs Report; McDonald's, Amgen, AIG In FocusHe added: "In the near term, we believe washed-out positioning or an improvement in the economic data will be required for the recent rotations to reverse. However, we expect continued technological progress and earnings growth will eventually lead investors to reengage with AI-exposed stocks."
Chipmaker Nvidia has been pummeled since the emergence of Chinese AI model developer DeepSeek, he noted. Nvidia stock has retreated 17% in 2025. It's among AI stocks to watch.
Among other data center infrastructure plays, shares in Arista Networks (ANET) are down 23%. Broadcom (AVGO) rebounded on Friday after reporting fiscal first quarter earnings.
"The AI trade has been extremely volatile in 2025, driven by a combination of macro and micro crosscurrents. The DeepSeek announcement catalyzed a sharp rotation away from Nvidia," Hammond said.
He added: "While AI capex among the (cloud computing) hyperscalers has been revised higher, the growth rate of AI capex is slowing. In addition, our investor conversations continue to suggest major uncertainty about the return on investment among the hyperscalers. Instead, as the cost of AI continues to decline, we expect investors will begin to seek companies with AI-enabled revenues."
Over the long-term, he still expects software maker Palantir Technologies (PLTR) to outperform. Palantir stock has gained 6% in 2025 but has retreated over 30% from an all-time high of 125.41 on Feb. 19.
The Goldman Sachs analyst is also upbeat on the outlook for Cloudflare (NET) and cybersecurity firm SentinelOneS, which reports earnings on March 12.
DeepSeek came out of nowhere to release a powerful AI training model developed with much less computing power. AI stocks sold off amid new questions over the outlook for capital spending on artificial intelligence infrastructure.
Among cloud computing giants, shares in Amazon.com (AMZN) have retreated 8% in 2025, Microsoft (MSFT) is down 5% and Alphabet (GOOGL) has shed down 9%.
The commoditization of AI models could spur application development. While "training" AI models has been the biggest driver of capital spending, the market will shift to "inferencing," or running AI applications, in the long run.
Having struggled to generate new revenue from "copilots," software companies such as Salesforce (CRM) are now turning to autonomous, goal-driven AI agents. One big issue for software companies is how fast customers ramp up pilot programs to commercial deployment.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
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