Goldman Sachs Flags Memory and Defense Stocks as Key Opportunities

Goldman Sachs' top Asia-Pacific equity strategist, Timothy Moe, is doubling down on two sectors that are capturing investor attention: memory chips and defense. In a recent CNBC interview, Moe described memory stocks as 'the stars of the show,' while also pointing to a recent defense sector sell-off as a 'technical correction' that creates an attractive entry point. This dual call comes as global markets navigate the tail end of a historic S&P 500 winning streak and lingering uncertainty around AI-driven growth.

The Memory Stock Rally: Still Room to Run

Moe's bullish stance on memory stocks is rooted in strong fundamentals. 'Equities in the space are the stars of the show,' he said, citing robust order growth and attractive valuations. The memory sector has been a key beneficiary of the AI boom, with demand for high-bandwidth memory (HBM) surging as hyperscalers expand their AI infrastructure. Jean-Louis Nakamura, head of conviction equities at Vontobel, echoed this sentiment, noting that hyperscaler capex is unlikely to decline in the next 12–18 months, providing a sustained tailwind for chip and memory producers.

However, recent weakness in Asian markets—including South Korea's Kospi and Japan's Nikkei—has raised questions about the sustainability of the rally. Moe argues that this is a temporary pullback, not a reversal. 'Fundamentals have improved,' he emphasized, pointing to increased orders and attractive valuations. For investors, the current risk-reward profile favors adding exposure to memory names, particularly those tied to AI and data center demand.

Defense Sector: A Technical Correction, Not a Trend

Moe also highlighted the defense sector, which has experienced a sharp sell-off in recent weeks. He described this as an 'understandable technical correction' rather than a fundamental deterioration. 'All the stocks that we look at have increased their orders, valuations are attractive, and so we think that there's an interesting risk-reward entry point here,' he explained. The defense sector has been a beneficiary of rising geopolitical tensions and increased government spending, but profit-taking after a strong run has created what Goldman sees as a buying opportunity.

This contrarian view aligns with broader market dynamics. While tech and AI have dominated headlines, defense stocks offer diversification and exposure to secular trends in global security. Moe's call suggests that the recent sell-off is overdone, and investors with a longer-term horizon could capitalize on discounted prices.

Broader Market Context and Other Plays

The commentary comes as the S&P 500 heads for its longest weekly winning streak since 1985, with all eyes on the May nonfarm payroll report. In Asia, the AI boom has shown signs of cooling, but Moe and other strategists remain constructive. Roger Lee, head of equity strategy at Cavendish, pointed to mid-cap stocks as a potential value play if oil prices continue to fall, easing inflation and interest rate expectations. Meanwhile, Nakamura highlighted selective opportunities in Chinese internet platforms, which he believes are 'over-punished' and well-positioned to monetize AI on vast pools of private data.

For investors, the key takeaway is that both memory and defense stocks offer compelling risk-reward profiles at current levels. Memory stocks benefit from structural AI demand, while defense stocks present a tactical buying opportunity after a correction. As always, diversification and a long-term perspective remain crucial.

Key Takeaways

1. Goldman Sachs sees memory stocks as 'stars' with strong fundamentals and attractive valuations.
2. The defense sector sell-off is viewed as a technical correction, offering a risk-reward entry point.
3. Hyperscaler capex is expected to remain robust, supporting AI and memory demand.
4. Mid-cap stocks and select Chinese internet platforms are additional opportunities noted by other strategists.

Sources: CNBC