Technology stocks are looking undervalued after a sustained period of underperformance, potentially offering investors a good entry point, according to Goldman Sachs. The brokerage noted that the technology sector has experienced one of its weakest periods of relative returns in the past 50 years. Several factors since 2025 have contributed to this weakness, including the release of Chinese AI models, significant capital expenditure by U.S. hyperscalers, and AI-driven disruption in the software industry, leading investors to favour value-driven stocks.
According to Goldman Sachs, this underperformance has created opportunities for investors in a sector where growth rates remain robust but valuations are low. In the U.S., the valuation premium for hyperscalers has diminished and is now nearly on par with the rest of the sector. Globally, the IT sector’s price-to-earnings ratio is lower than that of discretionary, staples, and industrials. The technology sector’s attractiveness is also increased by its relative insensitivity to economic growth and potential benefits from any rally in bond yields, making it potentially more defensive.
Despite these depressed valuations, technology earnings have demonstrated strength. Goldman Sachs pointed out that the consensus market expectation for IT earnings per share growth among S&P 500 sectors is 44%, accounting for 87% of the index’s EPS growth in the first quarter. Furthermore, earnings revisions have been more positive in this sector than any other. This has resulted in a significant divergence between performance and underlying earnings growth, highlighting the potential for future gains.
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