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A Reassessment Opportunity Appears After the U.S. Technology Pullback

Institution
Goldman Sachs
Date
2026-04-07
Authors
Peter Oppenheimer, Edoardo L. Greco
Company
-
Ticker
-
Industry
Information Technology / TMT
Rating
-
NeutralLow confidenceThe report argues that although U.S. technology has recently shown significant relative underperformance, earnings revisions, valuation and return-rate indicators indicate an improving risk-reward profile, and hyperscale data centers and AI investment remain major drivers of S&P 500 earnings growth.
AuthorsPeter Oppenheimer, Edoardo L. Greco
Asset classesEquity
Business segmentsInformation Technology、TMT、Hyperscale Data Centers、AI Infrastructure、Internet
Research firm divisions/subsidiariesGoldman Sachs（Other）

AI summary card

A Reassessment Opportunity Appears After the U.S. Technology Pullback

Goldman Sachs believes that although the U.S. IT sector has experienced a rare relative underperformance in many years, valuations have moved back to a more reasonable range, PEG is at a low level, earnings revisions are strong, and AI together with hyperscale data centers continue to support earnings growth in 2026.

This report is strategy research and does not provide a single-stock rating, target price, or current price.
U.S. TechnologyArtificial IntelligenceData CentersTMT ValuationEarnings Revisions
  • The U.S. IT industry has recently gone through one of the worst episodes of relative underperformance since the early 1970s.
  • Technology valuation premium has narrowed to near the overall market level, and the PEG ratio has fallen to lows comparable to those after the 2003–05 post-tech-bubble unwind.
  • GIR still forecasts 12% 2026 EPS growth, with AI investment expected to contribute 40% of S&P 500 EPS growth.
  • The market expects hyperscale data centers to post double-digit growth for a sixth consecutive quarter, with information technology expected to contribute 87% of S&P 500 first-quarter EPS growth.

Report interpretation

Overview

This report discusses investment opportunities in U.S. technology from a macro and strategic perspective after the sector's recent softness. The key takeaway is that while the sector's relative performance has weakened materially, earnings expectations are still being revised upward, valuations are closer to the broad market, and valuation-growth metrics such as PEG are at historically low levels. At the same time, AI-related capex and hyperscale data center demand continue to drive S&P 500 earnings growth.

Core views

The core view is that the U.S. technology sector did not fall solely due to deteriorating fundamental profitability; rather, markets are recalibrating terminal-value and capex dependency assumptions for long-duration growth companies. As virtual economy growth becomes increasingly dependent on physical infrastructure, investors are more sensitive to the return profile of AI, data centers, and technology capital spending. But after valuation premium compression, strong earnings revisions, elevated ROE, and AI's contribution to index earnings make U.S. technology selectively attractive again.

Analysis framework

The report evaluates post-drawdown fundamental and valuation alignment in U.S. technology using frameworks including relative performance, valuation percentiles, PEG, price-to-book and ROE, and EPS revisions. The charts focus on comparisons between U.S. and non-U.S. markets, historical valuation ranges in technology, the relationship between TMT P/B and ROE, and 2026–2027 EPS revisions by industry.

Methodology notes

  • Valuation methodsPEG ratio

    Price/Earnings relative to growth

    The report uses PEG to assess the attractiveness of technology valuations relative to earnings growth, noting that the current level has fallen to lows similar to those after the 2003–05 post-tech-bubble period.

  • Earnings QualityPrice-to-Book and ROE

    P/B and ROE alignment

    The report evaluates whether valuations are aligned with returns by examining the P/B versus ROE scatter relationship for TMT companies; the current positioning shows relatively high ROE with P/B having pulled back from prior highs.

  • Earnings OutlookEPS revisions

    Upward earnings revisions

    The report compares 2026 and 2027 EPS revisions across global industries and regions, showing the IT sector had the strongest YTD EPS revisions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

  • U.S. Information Technology sector
    Primary research focus
    Strengths
    Strong earnings revisions, AI and data-center demand supporting growth, and a clear compression in valuation premium.
    Weaknesses
    Severe recent relative underperformance and market skepticism about terminal values and capex returns for long-duration growth companies.
    Comparison
    Relative to other global industries, IT shows stronger EPS revisions in 2026 and 2027; relative to the broader market, valuations are now much closer to market averages.
    Risks
    AI capex returns below expectations, a slowdown in earnings revisions, and continued valuation compression.
  • Hyperscale data centers
    Key driver of U.S. technology earnings growth
    Strengths
    Expected to deliver double-digit growth for a sixth straight quarter, benefiting from AI infrastructure demand.
    Weaknesses
    Capex growth is expected to peak this quarter, with the market focusing more on input-output efficiency.
    Comparison
    Compared with other sectors, it has stronger earnings performance and stronger earnings-revision outlook.
    Risks
    Capex cycle deceleration, demand shortfalls versus expectations, and physical infrastructure constraints.
  • S&P 500 index
    Beneficiary of technology and AI investment contributions
    Strengths
    AI investment is expected to contribute 40% of S&P 500 EPS growth, while information technology is expected to account for 87% of first-quarter EPS growth.
    Weaknesses
    Index earnings growth has high dependence on technology and AI-related investment.
    Comparison
    Technology has a significantly higher share of index earnings contribution than other sectors.
    Risks
    If technology earnings contributions fall short, overall index earnings growth could be pressured.

Key data

  • Report date2026-04-07Page timestamp is 5:35 PM China Standard Time.
  • GIR 2026 EPS growth forecast12%The report states that GIR still forecasts 12% EPS growth for 2026.
  • Contribution of AI investment to S&P 500 EPS growth40%The report says AI investment is expected to account for 40% of S&P 500 EPS growth.
  • IT contribution to S&P 500 Q1 EPS growth87%The report states that information technology will drive EPS growth by 44%, accounting for 87% of S&P 500 first-quarter growth.
  • IT sector EPS revisionsAround 20% in 2026, slightly below 20% in 2027Chart 17 shows that IT has the strongest YTD EPS revisions among industries.

Impact & implications

For investors, the report implies that the pullback in U.S. technology may present reallocation opportunities, but the investment logic is shifting from simply chasing long-duration growth to a greater focus on capex returns, AI infrastructure monetization, persistence of earnings revisions, and valuation-ROE alignment. If AI and data-center demand materialize, the technology sector can remain a major source of index earnings growth; if capex peaks and revenue conversion falls short, the room for valuation recovery will be limited.

Risks

  • After AI-related capex growth peaks, revenue and profit conversion may underperform.
  • Market assumptions on terminal values for long-duration growth companies may continue to be marked down.
  • Although U.S. technology valuations have fallen, valuation support could weaken if earnings revisions lose momentum.
  • Data centers and AI infrastructure depend on physical inputs and may face constraints in power, land, supply chain, and funding.

What to watch

  • In the upcoming earnings season, U.S. information technology and hyperscale data-center revenue, earnings, and guidance.
  • Whether 2026 and 2027 EPS revisions can remain in front.
  • Whether hyperscale data-center capex peaks as expected and how return rates evolve afterward.
  • Whether AI investment's contribution to S&P 500 earnings growth reaches the 40% level cited in the report.
  • Whether technology valuations continue to stay near the market average or regain premium as risk appetite improves.
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