Over the past 10 years, Apple (AAPL-USA), Amazonia (AMZN-USA), Microsoft (MSFT-USA) and Alphabet (GOOGL-USA) and other tech giants dominate the US stock market. But Goldman Sachs strategists say those days appear to be over.
David Kostin, the bank’s chief US equity strategist, said on a conference call Monday (28) that tech stocks are unlikely to outperform the rest of the S&P 500 in the coming years, adding Say the revenue growth gap between tech companies and others companies should be much smaller.
“Dragon Kingdom’s technology group can be said to be finished,” he said.
According to Goldman Sachs, revenue generated by the tech giants increased at an annual rate of 18% over the 10-year period from 2010 to 2021, a situation Kostin called “remarkable.”
“Looking forward, the excessive sales growth that has characterized the bottom 10 tech companies will be significantly curtailed,” he and his team noted in a recent report.
A year ago, the “company value multiple” of the four tech giants was 7 times, compared to 4 times for the rest of the S&P 500.
Kirstin also pointed to instructive parallels between the two years following the dot-com bubble in March 2000 and the current one, as sales growth for the Big 4 US technology stocks has been half as much as expected.
This time around, the tech giants, and the tech industry more broadly, are shifting gears as the Fed abandons the loose monetary policy that fueled investor enthusiasm and begins aggressively reducing the currency to curb inflation .
Tech stocks are particularly vulnerable to rising interest rates and could bear the brunt of a Fed-induced crash in US equities in 2022.
Apple, Microsoft, Amazon, Apple and META have lost about $3 trillion in market value this year, according to Bloomberg data.
As Goldman Sachs put it, the current “big four tech stocks” representedS&P 500 index22% of the total. Over the past 12 months, that ratio has dropped to 18%; Thanks to inflation, these stocks produced a -25% total return, compared to the rest of the S&P’s -13% total return.
These issues have also resulted in hiring freezes and layoffs for these individual titles.
Goldman Sachs noted that the consensus forecast for 2021-24 sales growth for the four major tech stocks is 9%, just above the 7% expected by the rest of the market. Relatively speaking, the slowdown in sales growth of these large-cap stocks has also been accompanied by a decline in the premiums paid by investors for these stocks.
In terms of the overall US stock market, Goldman Sachs believes thatS&P 500 indexClosed roughly flat in 2023, held back by zero earnings growth.
“US stock performance in 2022 is all about painful valuation revisions, but the equity theme for 2023 will be about lackluster corporate earnings growth,” Goldman Sachs analysts wrote on the stock market.
