Wall Street rises as materials and crypto stocks offset continued bond sell-off
Investing.com -- The key risk for technology stocks lies less in stretched valuations and more in the durability of their earnings growth, Goldman Sachs strategists argue, as market leadership broadens beyond the largest tech names.
Equity returns have broadened geographically and across sectors since 2025, reversing a fifteen-year pattern in which the U.S. market, Technology sector and Growth style all dominated. "The opportunity set has shifted," the strategists led by Peter Oppenheimer wrote in a note, flagging that the U.S. has been "the weakest of the major regions" this year even as global equities have performed well.
Much of that shift traces back to the technology sector’s own valuation reset. The premium once commanded by the five largest U.S. stocks has "almost disappeared," the strategists said, with their forward price-to-earnings (P/E) now only marginally above the other 495 S&P 500 constituents, a significant contrast to the persistent premium seen since 2017.
"It also marks a very big change from the dot.com era. Back then, valuations reached a much greater high, but they came down as stock prices collapsed. This time, prices have adjusted more modestly, but earnings have remained exceptionally strong," they noted.
Software stocks have seen an even steeper de-rating, with their global P/E premium falling to around 20%, "a far cry from the near 200% at the start of this century," the note said.
The driver, according to Oppenheimer’s team, has been the surge in hyperscaler capital spending since the introduction of ChatGPT, which has eroded the sector’s once-premium free cash flow and pushed companies toward debt and equity markets for funding. That has weighed on the U.S. market’s free-cash-flow yield relative to more value-oriented markets such as Europe.
Yet even as valuations have compressed, implied future growth expectations for the sector have kept rising, the strategists said. Using a one-stage dividend discount model, they found that while implied growth remains below dot-com-era peaks, the 10-year earnings growth CAGR has "accelerated well beyond the 2000 peaks."
"Across Technology, there does not appear to be a valuation bubble, but there may be an earnings bubble," they added.
Goldman also pointed to a broader "capex ’super cycle’" spilling over into industries beyond tech, lifting the growth prospects and valuations of previously neglected "old economy" sectors. Industrials now carry the highest sector valuation globally, above their 20-year range, while Technology has fallen back in line with its own historical average.
The bank also highlighted falling stock correlation across major markets as a sign of a "healthy normalization" after years of extreme concentration in both market capitalization and performance. Strategists noted that IT has posted the strongest earnings growth this year alongside the biggest de-rating, while Energy has performed better despite weaker earnings growth, a divergence they said is opening up "alpha opportunities" for selective investors.
