Depressed tech valuations could offer entry point for investors, Goldman Sachs says

Technology stocks, including those from the United States, are looking cheap following a prolonged period of underperformance, creating a potential entry point for investors, Goldman Sachs said on Tuesday.

"(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, promptinginvestors ​to rotate into value-driven stocks.


The factors include the release of Chinese artificial intelligence (AI) model DeepSeek, massive capex spending by US hyperscalers and AI-driven disruption in the software industry. These factors have opened up an opportunity for investorsto enter the sector, where growth rates remain strong butvaluations ⁠are low. In the United States, the valuation premium forhyperscalers has fallen and is now almost same as for the restof the sector.

⁠Globally, the IT sector's price-to-earnings ratio is belowthat 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 ofthe technology sector is the effect of the war in Iran. "Given the relative insensitivity ‌of cash flows in thetechnology sector to economic growth, and the benefit it wouldderive 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 havebeen strong, Goldman said. Among S&P 500 sectors, Goldman said the market consensusis 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 andunderlying earnings growth," Goldman said.