In the past 10 years, Apple (AAPL-US), Amazon (AMZN-US), Microsoft (MSFT-US) and Alphabet (GOOGL-US) and other technology giants dominate the US stock market. But Goldman Sachs strategists say those days appear to be over.
David Kostin, the bank’s chief U.S. equity strategist, said on a conference call on Monday (28th) that technology stocks are unlikely to outperform the rest of the S&P 500 over the next few years, adding Say the revenue growth gap between tech companies and other companies is expected to be much smaller.
“The Dragon Kingdom group in tech can be said to be over,” he said.
According to Goldman Sachs, revenue generated by the tech giants compounded at an annual rate of 18% over the 10-year period from 2010 to 2021, a situation Kostin called “remarkable.”
“Looking forward, the excess sales growth that has characterized the past 10 technology companies will be significantly compressed,” he and his team noted in a recent report.
A year ago, the “enterprise value multiple” of the four tech giants was 7 times, compared with 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 was half what was expected.
This time, the tech giants, and the tech industry more generally, are shifting gears as the Fed abandons the easy monetary policy that stoked investor enthusiasm and starts aggressively tightening money to curb inflation.
Technology stocks are particularly vulnerable to rising interest rates and might bear the brunt of a Fed-induced slump in U.S. stocks in 2022.
Apple, Microsoft, Amazon, Apple and META have lost regarding $3 trillion in market value this year, according to Bloomberg data.
As Goldman Sachs said, the current “big four technology stocks” accounted forS&P 500 Index22% of the total. Over the past 12 months, that ratio has fallen to 18%; thanks to inflation, these stocks have delivered a total return of -25%, compared with the rest of the S&P’s -13% total return.
Those woes have also prompted hiring freezes and layoffs for these individual stocks.
Goldman Sachs noted that the consensus forecast for 2021-24 sales growth for the four top tech stocks is 9%, just above the 7% expected by the rest of the market. Relatively speaking, the slowdown in the sales growth of these large-cap stocks has also been accompanied by the contraction of the premium investors paid for these stocks.
In terms of the overall U.S. stock market, Goldman Sachs believes thatS&P 500 IndexClose roughly flat in 2023, held back by zero earnings growth.
“The performance of U.S. stocks in 2022 is all regarding painful valuation revisions, but the equity theme for 2023 will be regarding lackluster corporate earnings growth,” the Goldman Sachs analysts wrote. up the stock market.”
