U.S. TMT remains strong, but volatility in software, semiconductors, and momentum factors is heating up

Overview

This report is a market observation published by Goldman's U.S. TMT trading desk on June 1, 2026, centered on the market's internal structure after the strong rally in technology stocks in May. The report notes that there are still multiple positives at the index level: the NDX gained about 10% for the month, the S&P 500 kept rising, the VIX pulled back, and oil prices and real rates/inflation compensation stabilized. However, the trading desk also emphasizes that volatility is rising within technology across factors, software, semiconductors, and short baskets, showing that while the market appears strong on the surface, underlying divergence is deepening.

Core views

The core view is that 'the index trend is strong, but the underlying structure is more complex.' On one hand, risk appetite for technology stocks remains solid, and software, semiconductors, and parts of the hardware/AI infrastructure chain continue to attract capital attention. On the other hand, some core holdings such as NVDA, GOOGL, LITE, and GLW have stalled or pulled back, the GS Most Short basket has rebounded consecutively, and trading desk flows also show profit-taking in technology stocks last week. The report believes that going forward it will be necessary to observe whether software and internet momentum can stabilize, whether semiconductor rotation can still generate alpha, and whether the dense June catalysts support further broadening.

Analysis framework

The report mainly adopts a trading-desk observation framework, combining index performance, factor baskets, prime brokerage flows, client inquiries, sector rotation, earnings calendars, and conference catalysts to assess market sentiment. Its focus is not on bottom-up valuation models for individual companies, but on identifying the themes investors are trading, positioning changes, relative strength, and short-term catalysts.

Methodology notes

• Factor and fund flow observationMomentum/long-short portfolio observation

  Use GS TMT Mo' pair, GS Most Short basket, and GS PB data to observe the divergence between index gains and volatility in underlying factors.

  The report uses the sharp drawdown in momentum portfolios, the continued rise in the most shorted basket, and profit-taking in technology stocks to show that although large-cap technology indices remain strong, the risks of crowded internal trading and style rotation are rising.

• Event-driven observationCatalyst calendar

  Sort through the short-term impact of early June macro data, earnings, industry conferences, and company events on the TMT sector.

  The report lists events such as ISM, JOLTS, NFPs, NVDA GTC Taipei, SNOW Summit, Cisco Live, Computex, META Conversations, and MSFT Build to assess where capital will focus next.

• Sector rotation and relative strengthEnd-market rotation framework

  Observe thematic rotation among semiconductor investors from XPUs, Optical, Memory, CPUs, Power & Analog Semis to ODMs/OEMs.

  The report believes the semiconductor direction remains strong, but alpha is harder to capture, and the discussion focus is shifting more toward trading changes in end markets rather than purely bottom-up fundamental research.

Asset mapping & comparison

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

• NDX / U.S. large-cap technology

  Core index and carrier of technology risk appetite

  Strengths

  The NDX rose about 10% in May, the S&P 500 kept rising, the VIX pulled back, and oil prices and the rates market stabilized, all of which support risk appetite.

  Weaknesses

  Some core large-cap holdings have stalled, and the report mentions that NVDA, GOOGL, LITE, and GLW have recently faced performance pressure.

  Comparison

  The report compares the NDX's current level of about 17% above its pre-Iran-conflict high with last year's situation when the NDX stalled after being 17% above its pre-Liberation Day high.

  Risks

  Summer consolidation after elevated levels, profit-taking in technology stocks, momentum factor pullbacks, and insufficient market breadth.

• Software / SaaS

  One of the strongest rebound sectors in May and a focal point of client inquiries

  Strengths

  Software rose more than 20% in May, its best single-month performance since 2002; earnings from names such as OKTA and SNOW came in better than feared, and AI ARR and cloud-related narratives improved.

  Weaknesses

  The report believes investor sentiment and positioning have not fully caught up with the sharp rebound in stock prices from the lows, and divergence within the sector may remain high.

  Comparison

  The trading desk is more constructive on the divergence of Data Infra and Security relative to SaaS, rather than viewing software as a homogeneous rebound.

  Risks

  Pullbacks after rapid gains, insufficient earnings validation, changes in crowded positioning, and cooling thematic narratives.

• Semiconductors / SOX

  Core trading direction for AI infrastructure and the hardware cycle

  Strengths

  Semiconductors are up about 81% year to date, the SOX is about 65% above its 200-day moving average, and AI-related end demand continues to attract capital attention.

  Weaknesses

  The report says alpha generation is becoming more difficult, and some investor portfolios may 'outperform' without necessarily being holdings they truly 'like.'

  Comparison

  Market discussion has shifted from XPUs to Optical, Memory, CPUs, Power & Analog Semis, and then to ODMs/OEMs, reflecting accelerating thematic rotation.

  Risks

  Excessive valuations and expectations, future returns and earnings growth in Optical being priced in early, and a loss of momentum in thematic rotation.

• MSFT, META, ASML, ARM, QCOM, MRVL and other key stocks

  Catalyst-driven and relative-strength names closely watched by the trading desk

  Strengths

  MSFT, META, and ASML are listed as the most closely watched stocks in the short term; ASML is being discussed as a catch-up trade candidate, while ARM, QCOM, and MRVL continue to attract AI/semiconductor-related attention.

  Weaknesses

  GOOGL has fallen for 3 consecutive weeks and LITE for 5 consecutive days, showing that some large-cap or optical-related holdings have already lagged noticeably.

  Comparison

  The report also reviews the 'second act' in 2026 of strong Nasdaq stocks from 1999, such as AKAM, FFIV, VIAV, LRCX, and VICR, which have performed strongly year to date.

  Risks

  Unclear catalyst path, post-earnings pullbacks, overheated AI hardware trading, and relative-performance reversals caused by thematic switching.

• Single-stock leveraged/inverse ETFs

  Amplifier of market structure and short-term capital flows

  Strengths

  Since the U.S. introduced single-stock ETFs in 2022, global leveraged/inverse single-stock ETF AUM has exceeded $60bn and has doubled since early April.

  Weaknesses

  The rapid expansion in product scale may amplify intraday and end-of-day rebalancing flows in individual stocks.

  Comparison

  Compared with the market's earlier stage, both the asset coverage and scale of single-stock leveraged/inverse ETFs have expanded significantly.

  Risks

  Rebalancing in leveraged and inverse products may intensify volatility in popular technology stocks and increase the impact of technical trading.

Key data

• NDX performance in Mayabout +10%The report says the NDX rose about 10% in May and achieved its first back-to-back double-digit percentage monthly gains since 2009.
• S&P 500 winning streak statusup for 7 consecutive trading days and 9 consecutive weeksThe report notes that instances of more than 9 consecutive up weeks are very rare, with a prior 12-week streak occurring before December 1985.
• VIX levelaround 15The report says the VIX closed around 15 on Friday, back to the low range seen in early January.
• GS TMT Mo' pairabout -1,020 basis points intraday, about -875 basis points at the closeThis is the signal of a sharp pullback in underlying momentum factors emphasized by the report.
• GS Most Short basketup in 8 of the past 9 weeks, cumulatively more than +25%The strong rebound in the most shorted basket shows that short covering and high-beta rebounds have an important impact on market structure.
• Software sector performance in Maymore than +20%The report says the software sector posted its best single-month performance since 2002, driven by favorable positioning, earnings coming in better than feared, and improved AI ARR and cloud narratives.
• Semiconductor year-to-date performanceabout +81%The report says semiconductors are up about 81% year to date, making it one of the best years since 1999.
• SOX relative to 200-day moving averageabout 65% aboveThe report describes this as the most extreme level since 2000, signaling both strength and elevated risk.
• Single-stock leveraged/inverse ETF scalemore than $60bnThe report says global leveraged/inverse single-stock ETF AUM has doubled since early April.
• Examples of strong stocks in MayDELL +101%, WOLF +100%, MU +88%, SNOW/DDOG +87%, Hynix +82%, OKTA +70%These stocks reflect strong spillover across AI infrastructure, storage, software, and hardware chains.

Impact & implications

The investment implication is that the main technology trend has not been broken, but the market has entered a stage that depends more on sector rotation, positioning rebalancing, and catalyst validation rather than simple index gains. If software and internet momentum stabilize and semiconductor end-market rotation continues to broaden, the NDX may still benefit from improving market breadth; but if profit-taking accelerates, crowded factors continue to pull back, or June catalysts disappoint, the risk of summer consolidation and style reversal will rise.

Risks

• Technology stocks have risen substantially in the short term, and the NDX's expansion relative to previous highs is approaching levels where it has historically stalled.
• Momentum factors and long-short portfolios have seen sharp pullbacks, indicating that index gains do not fully represent the health of the underlying market.
• After the software sector's sharp single-month rally, a meaningful digestion may occur if fundamentals and positioning cannot continue to keep up.
• Semiconductor valuations and relative moving-average positions are elevated, and if end-market thematic rotation loses momentum, alpha generation will become even more difficult.
• Trading desk flows show signs of profit-taking in technology stocks last week.
• The expansion in leveraged/inverse single-stock ETF scale may amplify short-term volatility in popular single stocks and indices.

What to watch

• Whether software and internet momentum can stabilize again, especially in recently strong or heavily inquired names such as NOW, CRM, TEAM, OKTA, and SNOW.
• Whether semiconductor rotation continues to spread from Optical and Memory to CPUs, Power & Analog Semis, and ODMs/OEMs.
• Early June macro data: ISM Manufacturing, JOLTS, Eurozone CPI, US Auto Sales, US Factory Orders, Fed Beige Book, Initial Jobless Claims, and NFPs.
• Key conferences and company events: NVDA GTC Taipei, SNOW Snowflake Summit, CSCO Cisco Live, MSFT Build, META Conversations, Computex Taiwan, and Kioxia Investor Day.
• Key earnings and events: AVGO, CRWD, VEEV, DOCU, IOT, RBRK, HPE, CRDO, PANW, GTLB, and others.
• Whether technology stocks in GS PB flows continue to see profit-taking, or shift toward broader market participation.