Technology stocks, including those from the United States, are looking cheap following a prolonged period of underperformance, creating a potential entry point for investors, Goldman Sachs said on Tuesday.
“(So far this year), we have seen one of the weakest periods of relative returns for technology over the past 50 years,” the brokerage said in a note.
* Since 2025, several factors have contributed to the relative weakness of the broader technology sector, prompting investors to rotate into value-driven stocks.
* The factors include the release of Chinese artificial intelligence (AI) model DeepSeek, massive capex spending by U.S. hyperscalers and AI-driven disruption in the software industry.
* These factors have opened up an opportunity for investors to enter the sector, where growth rates remain strong but valuations are low.
* In the United States, the valuation premium for hyperscalers has fallen and is now almost same as for the rest of the sector.
* Globally, the IT sector’s price-to-earnings ratio is below that of discretionary, staples and industrials.
* “The underperformance of the technology sector is also starting to generate attractive valuation opportunities for investors as its valuation, relative to expected consensus growth, has fallen below that of the global aggregate market,” Goldman said.
* Another factor that has increased the attractiveness of the technology sector is the effect of the war in Iran.
* “Given the relative insensitivity of cash flows in the technology sector to economic growth, and the benefit it would derive on any rally in bond yields, this sector might prove to be more defensive over the next few months,” Goldman said.
* Despite depressed valuations, technology earnings have been strong, Goldman said.
* Among S&P 500 sectors, Goldman said the market consensus is for IT earnings per share to grow by 44 per cent, accounting for 87 per cent of index EPS growth in the first quarter.
* “Earnings revisions have been more positive than for any sector too. This has led to a record gap between performance and underlying earnings growth,” Goldman said.