US tech stocks rally ahead, says Goldman
US technology stocks may be about to turn a corner after the Nasdaq 100’s biggest monthly decline this year, according to strategists at Goldman Sachs Group Inc.
They say the selloff has led to historically cheap valuations for the tech stocks at a time when earnings estimates are still rising. In particular, they point to a valuation metric known the PEG ratio, which calculates price relative to earnings and long-term growth.
Goldman’s analysis shows that the largest seven tech stocks have a PEG ratio of 1.3, compared with 1.9 for the median S&P 500 stock. That’s the largest discount since January 2017 and a level that has been reached only five times in the last decade, they said.
“The divergence between falling valuations and improving fundamentals represents an opportunity for investors,” strategists including Cormac Conners and David Kostin wrote in a note dated Oct. 1.
While tech stocks started the year with a blistering rally driven by hype over artificial intelligence, the optimism has faded in recent months and there’s growing concern that the Federal Reserve will keep interest rates higher for longer. The tech-heavy Nasdaq 100 finished September with its biggest monthly decline since December 2022.
With the focus now turning to the third-quarter earnings, expectations around tech are holding up better than the rest of the market. A Citigroup Inc. index shows profit upgrades are still outnumbering downgrades for tech stocks.
Overall, analysts expect technology earnings to rise 4.3% in the third quarter compared with a year earlier, according to data compiled by Bloomberg Intelligence.
The Goldman strategists said history also bodes well for the sector’s performance during the reporting season. The largest
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