Goldman Sachs drops blunt warning on tech stocks

Goldman Sachs just delivered a major reality check on tech stocks.The firm said the sector is experiencing its weakest performance in 50 years, Seeking Alpha reported. Clearly, the call lands as a shockwave for a stock market that has been tech-oriented for years, with the biggest names dominating.Big Tech has been the market’s engine, but that is now starting to sputter, especially when pitted against the broader market.Goldman links this to a sharp shift that began in early 2025, when new AI developments began blurring the lines around which company has a competitive edge. At the same time, we saw that the cost of chasing that edge rose incredibly fast. Hyperscalers dropped billions in developing infrastructure at a relentless pace, raising concerns over potential returns. Naturally, that backdrop has completely reshaped investor behavior.For perspective, tech stocks have been choppy, but the trade isn’t broken.Over the past month, the Technology Select Sector SPDR Fund (proxy for big-cap tech) gained 3.20%, obliterating the SPDR S&P 500 ETF Trust’s 0.54% gain.Nvidia (NVDA) was naturally the key read-through for tech sentiment, with shares up 2.40% over the past month, though still down 2.37% year to date. Tech showed signs of a rebound, but the leadership isn’t clean or broad enough to effectively call it an all-clear rally. So now, we’re seeing a rotation into sectors linked to real-world assets, including areas like energy and industrials, while tech valuations have quietly reset. Even though earnings expectations remain robust, the clear disconnect between performance and fundamentals is a major theme shaping markets at this point.

Wall Street Tech stock ETFs flash mixed signals in 2026Over the past year, we’ve seen tech-focused ETFs' performance diverge, with some showing strength while others lagged.Semiconductors or chip stocks have emerged as clear frontrunners, while the broader tech and Mag 7 exposure remained under immense duress. That split has become much clearer over the past three months, with substantial declines across some AI-focused funds. Broad technology ETFsVanguard Information Technology ETF: YTD -1.95%; 3-month -2.08%Technology Select Sector SPDR Fund: YTD -1.58%; 3-month -1.77%Artificial intelligence and robotics ETFsGlobal X Robotics & Artificial Intelligence ETF: YTD -3.06%; 3-month -6.92%ARK Autonomous Technology & Robotics ETF: YTD +4.46%; 3-month -5.60%Semiconductor ETFsVanEck Semiconductor ETF: YTD +17.44%; 3-month +11.59%iShares Semiconductor ETF: YTD +23.00%; 3-month +15.90%Magnificent 7 ETFRoundhill Magnificent Seven ETF: YTD -9.31%; 3-month -9.20% Goldman Sachs flags tech stocks showing the weakest relative performance compared to the broader market in 50 years.Santiago/Getty Images Why Goldman Sachs sees a historic tech resetAccording to Goldman Sachs strategist Peter Oppenheimer, the sector is experiencing the worst relative-return stretch in the past 50 years, underperforming global ex-tech markets, Morningstar noted.The sluggishness and eventual downturn started in early 2025, in line with the emergence of new AI competition like DeepSeek, questioning the durability of Big Tech’s competitive advantages.More Wall StreetBillionaire Dalio sends 2-words on Fed pick WarshTop analyst bets these stocks will boost your portfolio in 2026Bank of America sends quiet warning to stock market investorsAt the same time, the sheer scale of investment is a big part of the problem.For perspective, Microsoft, Amazon, Alphabet, and Meta anticipated spending a combined $635 billion on data centers, chips, and other AI infrastructure in 2026, according to a Reuters report from late March.Oppenheimer said that tech history is flooded with examples where tremendous investment into infrastructure ultimately yields weak returns, and today’s AI-led spending pattern points to the same concerns. Three forces are driving this shiftCapital intensity risk: Outsized investments in AI infrastructure continue to pressure expectations for future returns, especially as costs rise faster than monetization clarity.Rotation into real assets: Growth is moving toward data centers and energy, pushing investors to rotate into industrials and other safer sectors.Valuation reset: Tech valuations have compressed, with global IT price-to-earnings ratios hovering behind consumer discretionary, staples, and industrials.Moreover, the bank notes a “record gap” between relative stock market performance and fundamentals, even with analysts expecting tech stocks to deliver 44% EPS growth and account for 87% of S&P 500 earnings growth in Q1 2026.Tech’s grip on the S&P 500 remains immenseState Street data updated in early April this year revealed that the IT sector made up a whopping 33.3% of the S&P 500’s index weight, The Motley Fool noted, comfortably ahead of financials at 12.5% and communication services at 10.5%. The same report showed that three AI bellwethers in Nvidia, Apple, and Microsoft accounted for roughly 19% of the S&P 500. According to Reuters reporting in late January this year, the tech sector accounted for roughly one-third of the S&P 500 by weight, and the Mag 7 made up one-third of the index. FactSet commentary published around the same time indicated the Mag 7 was expected to post 20.3% year-over-year earnings growth for Q4 2025, while the other 493 S&P 500 companies were likely to deliver just 4.1% growth. For calendar 2026, FactSet said the Mag 7 was projected to grow earnings 22.8%, versus 12.1% for the other 493 companies. Mag 7 accounted for more than 40% of the S&P 500’s total return since the April 8, 2025, market lows, aReuters report from May last year showed. For perspective, the Mag 7 drove well over half of the index’s 58% two-year return in 2023 and 2024. Related: Morgan Stanley delivers blunt message to Tesla stock investors