Author：Wall Street CN
U.S. tech stocks have had their worst performance relative to the broader market in half a century, but Goldman Sachs believes that unremarkable earnings resilience and rapidly declining valuations are opening up "generational buying opportunities" for investors.
A team led by Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said that U.S. stocks no longer appear expensive in terms of relative valuation, and after the adjustment, the valuation system has a repricing window.
Several relative valuation metrics have been "reset".The market's pessimistic pricing of the technology sector is close to the lows following the bursting of the tech bubble between 2003 and 2005, while earnings revisions in the technology sector continue to outpace other industries, widening the divergence between stock performance and fundamentals.
Amid investor focus on the Middle East situation and the intraday tug-of-war between oil prices and US stock futures, technology stocks represent a potential defensive allocation. It is believed that if the disturbances in the Strait of Hormuz continue...This could trigger a "perceived growth shock" and limit interest rate increases, thereby enhancing the relative attractiveness of the technology sector.
The weakest relative return in 50 years, a reset of the valuation system.
Technology stocks have fallen to their weakest relative performance to the broader market in 50 years, with valuations returning to more comparable levels.
One key change is the regression of the PEG ratio between the US and other markets.
After years of decoupling driven by the narrative of "American exceptionalism," the PEG ratio difference between US stocks and global markets has been reset. The PEG ratio of the technology sector is now lower than that of the global aggregate market, and the future earnings prospects implied by the tracking PEG ratio of technology stocks are "very weak," reaching levels not seen since the 2003-2005 lows.
From a horizontal comparison perspective,The price-to-earnings ratio of the global IT sector is now lower than that of the consumer discretionary, consumer staples, and industrial sectors, and its valuation premium relative to its historical levels has also declined significantly.
Earnings have not weakened, and the divergence between stock price and fundamentals has widened.
Technology stocks have not experienced earnings deterioration commensurate with the valuation revisions.
Despite market concerns about rising capital expenditures and declining future returns, the return on equity for related companies remains high, and earnings forecast revisions for the technology sector are "more positive than any other sector."
This has led to a record gap between earnings growth and market performance in the technology sector.
However, if credit availability is severely impacted, or if hyperscale cloud vendors' revenue is affected, related investment spending could be weakened.Analysts' expectations for the size of the profit tailwinds from these investments have "in fact continued to rise" in the past few weeks.
Rotation squeezes technology premiums, with valuations of ultra-large-scale cloud vendors approaching those of the broader market.
Recent pricing pressures are partly attributable to two concerns: first, market concerns about the capital expenditures of hyperscale cloud vendors; and second, the disruptions brought about by AI that have impacted some technology stocks, such as software.
Capital is therefore revaluing long-neglected "old economy" companies, including those in the energy, basic resources, chemicals, healthcare, and industrial sectors.
The aforementioned sectors "deserve higher valuations," but the technology sector has been "over-punished" despite its continued strong growth.Taking hyperscale cloud vendors as an example, their valuations are approaching the valuation levels of the rest of the S&P 500, and the premium of the technology sector has been significantly compressed.
Unconcerned about a bubble, Middle East unrest strengthens "defensive attributes" in pricing.
There are no concerns about a bubble in tech stocks, with current valuations still lower than those before the 2000 tech bubble and before the "Nifty Fifty" crash of the 1970s.
Unlike previous bubble phases, the market has not been "flooded" with tech IPOs. Even if new listings emerge in the future, they are more likely to provide a basis for differentiated pricing within the sector.
Geopolitical factors were also incorporated into their buying logic. The Iran war provided a "last reason" to buy tech stocks: the longer the disturbance in the Strait of Hormuz lasts, the more likely it is to trigger a "perceived growth shock," thereby limiting interest rate increases.
The Oppenheimer team stated that...Given that the technology sector's cash flow is relatively insensitive to economic growth and it could benefit from any rebound in Treasury yields, the sector may become more defensive in the coming months.
