Big Tech stocks may be 'opportunity for investors' after decline

Goldman Sachs strategists say the Nasdaq 100 selloff has led to historically cheap valuations for tech stocks while earnings estimates are still rising

The Nasdaq MarketSite in New York.  

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.

They say that 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, which calculates price relative to earnings and long-term growth.

“The divergence between falling valuations and improving fundamentals represents an opportunity for investors,” strategists including Cormac Conners and David Kostin wrote in a research note.

While tech stocks started the year with a blistering rally driven by hype about artificial intelligence, the optimism has faded in recent months and there is growing concern that the US 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.

Profit upgrades outnumber downgrades

A Citigroup 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 Sachs strategists said history also bodes well for the sector’s performance during the reporting season. Shares in Nvidia jumped yesterday after Goldman Sachs added the chipmaker’s stock to its conviction list, while Tesla rose after falling as much as 3% earlier in the session as it missed market estimates for third-quarter deliveries.

• Bloomberg