Goldman Sachs says recent underperformance in technology stocks has created a potential entry point for investors, with valuations now appearing unusually attractive relative to growth prospects.
According to the bank, the sector is experiencing one of its weakest relative performance periods in decades. Despite this, underlying earnings remain strong, creating a widening gap between stock prices and fundamental performance.
Several factors have weighed on tech valuations since 2025. These include the emergence of low-cost AI models from China such as DeepSeek, heavy capital spending by hyperscalers, and structural disruption across the software industry driven by artificial intelligence.
As a result, valuation premiums for large technology firms have declined significantly. In some cases, major cloud and AI companies are now trading at multiples comparable to the broader market, while the global IT sector’s price-to-earnings ratio has dropped below sectors such as consumer goods and industrials.
Goldman notes that the sector’s earnings outlook remains robust. Technology companies are expected to deliver 44% earnings-per-share growth in the first quarter, accounting for the majority of growth in the S&P 500.
The bank also highlighted the sector’s relative resilience in uncertain macroeconomic conditions. With cash flows less sensitive to economic cycles and potential upside from rising bond yields, technology stocks may act as a defensive play in the near term.
Overall, Goldman Sachs argues that the disconnect between strong earnings growth and weaker stock performance presents a compelling opportunity for investors willing to re-enter the sector.
