Goldman Sachs Identifies Healthcare as Next Phase for AI Adoption Amid US Midterm Market Shifts

The upcoming US midterm elections are expected to accelerate ongoing shifts in stock markets, with the healthcare sector positioning itself as a potential defensive investment, according to Lou Miller, Global Head of Custom Basket Trading at Goldman Sachs.

Speaking on Goldman Sachs’ The Markets podcast, Miller pointed out that investors had already initiated a shift toward defensive positions ahead of the midterm elections. This trend reflects a challenging operating environment for active investors during the second half of 2026. Data from the firm's prime book indicates that beta-adjusted net exposure has dropped to historically low levels.

The commentary follows a notable market correction across artificial intelligence-related investments. According to Miller, data centre stocks have declined 36 percent from their earlier highs this year. Meanwhile, memory stocks have fallen 42 percent, optical networking stocks 46 percent, and NeoCloud stocks have dropped 57 percent.

Despite these corrections, Miller highlighted potential advantages in the current pricing structure. He noted that the multiple for the data centre trade is currently about half of what it was in June, bringing valuations down to healthier levels and lowering expectations for future surprises.

Looking ahead, Miller identified healthcare as a primary beneficiary of the next phase of artificial intelligence adoption. He described healthcare as a defensive sector that has historically remained uncorrelated to AI, noting that it could be among the few sectors to experience accelerating earnings growth next year. Healthcare companies are increasingly integrating AI into applications such as medical tools and diagnostics, transforming previous operational challenges into growth opportunities.

Conversely, Miller advised caution regarding traditional defensive sectors like consumer staples, citing elevated valuations that diminish their overall attractiveness. He suggested that expensive defensives may not offer true protection, recommending instead that investors concentrate on companies characterized by strong balance sheets, quality earnings, and healthy free cash flows.

Outlining broader portfolio positioning, Miller stated that the S&P 500 excluding AI represents a favorable trade, supported by attractive valuations and solid earnings growth prospects. Key macroeconomic indicators to watch moving forward include employment data, inflation metrics, corporate earnings reports, and the US Federal Reserve’s upcoming policy decision scheduled for December 9. Regarding the year-end trajectory for US stock markets, Miller expressed cautious optimism, anticipating a modest rally.

"The recent market correction in artificial intelligence infrastructure has brought valuations down to more sustainable levels, creating a healthier environment for investors. As sectors like healthcare begin to integrate AI into diagnostics and medical tools, we are seeing a shift toward defensive industries with strong balance sheets and genuine earnings growth potential. Investors are increasingly prioritizing fundamentals, quality earnings, and disciplined capital allocation as they navigate macroeconomic shifts and upcoming policy decisions." — Dr. Shishir Gupta, Founder & CEO, StartupLanes