Shrinking free cash flow at Big Tech firms, not renewed enthusiasm for other sectors, is the main reason the stock market rally is broadening beyond a handful of mega-cap names, according to Goldman Sachs. The equally weighted S&P 500 has beaten its cap-weighted counterpart by more than 7.3% for the first time since 2009, as aggressive AI-driven capital spending squeezes hyperscaler cash generation.
Big Tech's capital spending, not a rotation of enthusiasm into new sectors, is the main reason the stock market rally is broadening beyond a handful of mega-cap names. Goldman Sachs strategist Peter Oppenheimer laid out the case in a new note.
Equal-weighted S&P pulls ahead
For the first time since 2009, the equally weighted S&P has outperformed the S&P 500 by more than 7.3%, Oppenheimer noted. The US equity market, dominated by hyperscalers such as Amazon and Alphabet, has seen a sharp decline in free cash flow yield relative to more value-oriented markets like Europe, helping support the rotation in relative performance, he said.
Capex climbs while 2027 stays vague
Capital expenditure figures from Big Tech this earnings season have been eye-popping. Meta raised the bottom end of its 2026 capex target to a range of $135 billion to $145 billion, up from $125 billion to $145 billion. But the company gave no specifics on 2027 spending — Meta CFO Susan Li told analysts, "We aren't providing a specific outlook for 2027 capex at this time."
Alphabet's second-quarter capital expenditures came in at $44.9 billion, slightly above Wall Street forecasts of $44.7 billion. The company also raised its full-year capex guidance to $195 billion to $205 billion from $180 billion to $190 billion, with executives calling the planned 2027 increase significant.
Other forces behind the rotation
Oppenheimer pointed to several additional factors behind the broadening. He cited the resilience of the US and European economies, where the median stock has performed best, plus a pickup in M&A activity that is drawing interest away from the largest-cap names. Small caps have outperformed large caps in the US, he added. A sharp unwind of momentum trades in recent weeks has also supported a wider rotation of market leadership.
With free cash flow outlooks likely to stay subdued among prominent tech names in the medium term, Oppenheimer said, it's plausible the market's broadening will stretch on.
Source: Yahoo Finance
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