Goldman Sachs has recommended 23 defensive stocks in health care and consumer staples for investors who are getting nervous about the AI trade. The list, led by strategist Ben Snider, is aimed at people worried that months of interest rate pressure have raised concerns about the cost of capital, pushing the stock market to lower its growth expectations.
The recommendation lands after a rough stretch for cyclical stocks. Goldman's Cyclicals vs. Defensives pair fell 6% in the two weeks before the report, a sign that cyclical names were underperforming their defensive counterparts. The Philadelphia Semiconductor Index ended the week down 11.4%, its steepest weekly loss since April 2025.
Why Goldman is worried about AI earnings
Goldman estimates that AI capital spending drives about half of S&P 500 earnings growth. The firm expects that share to shrink as spending growth slows. It also projects S&P 500 earnings growth will cool from around 29% in 2026 to 18% in 2027.
That doesn't mean Goldman is calling for a collapse. The base case still calls for continued earnings growth. Economists expect weaker energy prices and falling rates in 2027 to lift household spending and help lagging consumer-facing stocks. But for investors who fear a weaker outcome, Goldman says the move is to focus on defensive industries with what it calls “quality” attributes.
What's on the list
The 23 names share two traits: low volatility and high free cash flow yields. Tyson Foods tops the group with an 11% free cash flow yield over the trailing four quarters. Its shares have fallen nearly 8% since the start of 2026 and about 16.8% over the past six months, closing at $54 on October 19. The stock carries a 3.72% dividend yield.
CVS Health also made the cut with a 9% free cash flow yield. Its stock has gained nearly 17% since the start of 2026 but slipped 15% over the past three months. It yields 2.88%.
Goldman strategists noted that health care has typically been among the best-performing parts of the S&P 500 when growth is positive but slowing. That's the scenario the firm is positioning for.
RBC makes a similar call
Goldman isn't alone. RBC Capital Markets cut tech to market weight on October 14 and recommended health care in its place. Lori Calvasina, RBC's head of US equity strategy, said the pace of upward earnings revisions remains strong for tech overall but has started to slow for semiconductor and chip equipment stocks in the Russell 3000.
The two calls point to the same concern: the AI trade has been the market's main engine, and any slowdown in spending or earnings revisions hits hardest where expectations are highest. Defensive sectors, by contrast, offer cash flow and dividends that don't depend on the AI cycle.
What to watch
Goldman's list is a recommendation, not a prediction. The firm still expects earnings growth to continue, and its base case has consumer-facing stocks recovering as rates fall. The question for investors is whether the rotation into defensives is a short-term hedge or the start of a longer shift. With the Philadelphia Semiconductor Index coming off its worst week since April 2025, the next few earnings reports from chip companies will likely set the tone.
