Goldman Sachs: Valuation Gap Between Big Tech and Broader Market Nearly Vanishes
Claire Weston
Goldman Sachs says the P/E gap between America's five largest stocks and the remaining 495 in the index has all but disappeared — erasing a premium that persisted since 2017 and marking a new phase of structural re-rating that Goldman views as a re-entry window.
How did the valuation premium vanish?
The five largest US stocks now trade at a P/E only marginally above the other 495 constituents. This means → the eight-year logic of "buying Big Tech equals buying a premium" no longer holds.
Globally, the tech-sector P/E premium has fallen from nearly 200% at the start of the century to roughly 20%.
In plain terms = Big Tech used to cost more than double the rest of the market. Now they are priced almost the same.
How is this different from the dot-com bubble?
Goldman strategist Peter Oppenheimer's team drew a clear distinction: during the dot-com bust, valuations only fell after share prices collapsed.
This time is different — the share-price correction has been relatively mild, yet earnings remain exceptionally strong. This means → the valuation compression is not about companies failing; it is the market re-pricing them.
This reflects a shift from "pay any price for tech" to "pay for actual earnings."
Where did the money go — why are old-economy sectors now more expensive?
Investor rotation has pushed industrials valuations above the top of their 20-year range, surpassing tech.
Consumer staples, consumer discretionary, and healthcare all trade at higher P/Es than information technology and communication services. In plain terms = drugmakers and household-goods companies are now pricier than software firms.
The tech sector's P/E has retreated to near its 20-year historical average.
Why are chip stocks in a particularly awkward spot?
Chip stocks lead the current tech rally, powered by AI demand and rapid earnings growth.
But chips are inherently cyclical — their earnings swing sharply with the economic cycle — and the market worries whether this growth pace can last, driving valuations down.
Goldman notes that despite the valuation compression, the market's implied future growth expectations for chips are still rising, and remain well below dot-com-era peaks. This means → the market is not betting on a bubble; it is paying for growth cautiously.
Why does Goldman call this a re-entry opportunity?
Goldman argues the Big Tech valuation reset opens a window to re-enter US equities, while recommending selective geographic diversification.
On return on equity (ROE — how much profit a company generates from shareholders' capital), the US market remains the most attractive globally.
A separate Goldman report notes that after the sharpest momentum-stock rallies in history, a consolidation pullback like the current one is typical. This reflects that today's volatility is not abnormal; heavy deleveraging by hedge funds and ETF investors also suggests rotation volatility will converge over the coming weeks.
Content is for reference only, not financial advice.