Goldman Sachs Flags One of Tech's Weakest 50-Year Stretches Amid Selloff

Peter Oppenheimer's equity strategy team at Goldman Sachs placed the current technology selloff among the worst in a dataset stretching back to 1973, declaring in a research note published Tuesday that "so far this year, we have seen one of the weakest periods of relative returns for technology over the past 50 years."

The firm's analysis measured World Tech returns against the World ex-TMT universe across more than five decades of data. The current drawdown ranked among the weakest on record in that full history.

The Magnificent Seven, comprising NVIDIA, Apple, Microsoft, Amazon, Meta Platforms, Alphabet, and Tesla, lost a collective $1.1 trillion in market capitalization heading into early April. Nvidia's forward price-to-earnings multiple compressed from the low 30s to roughly 20, even as its earnings continued to grow. Software stocks fell from a premium market multiple to parity in a matter of months.

Goldman identified three forces behind the de-rating. The first was the hyperscaler capital expenditure surge. Goldman revised its 2026 estimates for cloud and AI infrastructure spending upward from $465 billion to $527 billion, and Oppenheimer drew an explicit historical parallel: "The history of technology breakthroughs, from the steam engine to railways, PCs and the internet, is littered with examples of new technologies that attracted large sums of capital to build out underlying infrastructure which have led, ultimately, to low returns. The gains are then enjoyed by other companies, many of which piggyback off the original investment."

The second driver was the release of Chinese AI model DeepSeek and successive generations of large language models, which raised fresh doubts about the competitive moats of dominant U.S. tech players. The three-month realized pairwise correlation among major AI hyperscalers, including Amazon, Google, Meta, Microsoft, and Oracle, fell sharply, signaling a breakdown of the monolithic Magnificent Seven trade that had defined the post-pandemic bull run. The third factor was macro rotation into old-economy stocks and defense plays, driven partly by the geopolitical shock of the Iran conflict and concerns about AI disrupting existing software business models.

The valuation picture that emerged was historically unusual. The IT sector's PEG ratio fell below the global aggregate market, meaning investors were being paid less to own the fastest-growing sector than to own the broader market. Globally, IT's price-to-earnings ratio dropped below consumer discretionary, consumer staples, and industrials, a positioning Oppenheimer described as something that would have seemed "inconceivable just 18 months ago." The valuation premium for U.S. hyperscalers narrowed to near parity with the rest of the sector.

Goldman's bull case rested on the earnings data. The firm projected IT earnings per share to grow 44% in Q1 2026, accounting for 87% of total S&P 500 EPS growth in the quarter, with tech earnings revisions more positive than any other sector. Oppenheimer framed the setup as a technology value opportunity, writing that "these factors have opened up an opportunity in the technology sector where growth rates remain strong, but valuations are now low." He further argued the Iran conflict could paradoxically benefit tech, given that cash flows in the sector are relatively insensitive to economic growth: "This sector might prove to be more defensive over the next few months."

The current cycle differed sharply from the dot-com analog in one critical respect. Roughly 500 U.S. companies went public in a single year before the dot-com implosion; IPO activity in the current cycle has been a fraction of that figure. Tech sector debt ratios also remained historically low. Goldman's conclusion: the de-rating reflected valuation reassessment, not a fundamental earnings collapse.

Morgan Stanley Chief U.S. Equity Strategist Michael Wilson, writing the day before Goldman's note, offered a parallel view, saying the S&P 500 was "carving out a low" with its forward P/E already down 18% from its six-month peak. Wilson identified Treasury yields pushing back above 4.50% as the primary remaining risk for further multiple compression.