Banking giant Goldman Sachs is now bullish on a sector that has recently underperformed the broader market.
A team of analysts led by Peter Oppenheimer, chief global equity strategist at Goldman Sachs Research, are predicting a massive rally for tech stocks, reports MarketWatch.
Say Goldman’s analysts,
“Globally, the IT sector now has a P/E (Price-to-Earnings) below consumer discretionary, consumer staples and industrials. Unlike most sectors, its valuation premium relative to history has also fallen sharply.”
Goldman’s analysts also say that tech’s price-to-earnings-to-growth ratio (PEG) – a comparison of a stock’s price against how quickly analysts expect the company’s earnings to grow over the coming years – is below that of the global aggregate market, creating “valuation opportunities,” meaning tech stocks are undervalued at current market prices.
The bank’s analysts highlight that tech earnings revisions are more positive than other sectors and there is a large gap between stock performance and underlying earnings growth. They also argue that tech companies’ increasing capital expenditures should payoff down the line.
“While a severe shock to credit availability or hyperscaler revenues could jeopardize this spending, analyst estimates for the magnitude of the earnings tailwind created by those investments have only increased during the past few weeks.”
Finally, the bank’s analysts say that they are not concerned about a market bubble, noting tech valuations remain lower than they were before the 2000 tech bubble.
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