“(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%,
accounting for 87% 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.