Goldman Sachs strategists say the valuation gap between the biggest US technology stocks and the rest of the market has closed, after a summer sell-off in AI-themed names. The bank's Peter Oppenheimer says the derating has created an opening for investors, while sector leadership has shifted toward industrials and other "old economy" names.
The five biggest US stocks now trade at a price-to-earnings ratio only marginally above the other 495 stocks in the market, erasing a premium those companies had held consistently since 2017. Goldman Sachs strategists led by Peter Oppenheimer point to the derating of dominant technology companies, driven by investor anxiety over the returns that heavy capital spending might eventually produce.
A different pattern from the dot-com era
According to Goldman Sachs: "It also marks a very big change from the dot-com era." Back then, valuations reached a much greater high before stock prices collapsed, whereas this time prices have adjusted more modestly while earnings have stayed exceptionally strong, Oppenheimer's team said.
The technology sector's price-to-earnings premium has dropped to 20% globally, down from nearly 200% at the start of the century, even as chip stocks have kept growing on AI-driven demand. Goldman noted that the cyclicality of those chip businesses, and the risk that their earnings prove less durable, has driven their own valuation lower too.
Old-economy sectors take the lead
Investor rotation has lifted valuations across sectors long overlooked by the market. Industrials now carry the highest sector valuation, above its 20-year range, while technology sits in line with its own 20-year average. Consumer staples, discretionary and healthcare stocks are now all more highly valued than information technology or communication services, the strategists said.
Goldman also flagged that the US market remains by far the most attractive from a return-on-equity perspective despite the lower price-to-earnings ratio on its biggest stocks, adding that the setup gives investors a chance to re-engage with US equities while staying selectively diversified across regions.
The Nasdaq Composite has climbed 1.59% over the past five sessions to 25,373.85. Over the same stretch, the S&P 500 has gained 1.05% to 7,489.72.
Source: MarketWatch
Trading involves risk.
Risk Disclaimer
