Goldman Sachs wants you to buy technology stocks. Not eventually. Now.
The firm’s chief U.S. equity strategist, David Kostin, issued a note this week making the case that the recent pullback in mega-cap tech and the broader information technology sector represents a buying opportunity rather than the beginning of a sustained downturn. His argument rests on a straightforward premise: the fundamental earnings power of America’s largest technology companies hasn’t deteriorated, even as their stock prices have, and the gap between where these stocks trade and where their profits suggest they should trade has widened to levels that historically precede strong rebounds. As Barron’s reported, Kostin’s team sees the sell-off as driven more by sentiment and positioning than by any structural change in the earnings outlook.
That’s a bold call given the turbulence of recent months. The Nasdaq Composite fell into correction territory earlier this year, dragged down by a combination of tariff anxieties, rising Treasury yields, and growing skepticism about the timeline for artificial intelligence monetization. The so-called Magnificent Seven — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla — collectively shed trillions in market capitalization from their highs. Investors who had piled into these names with near-religious conviction suddenly found reasons to doubt.
But Goldman’s view is that the doubt has been overdone.
Kostin’s team pointed to several data points in their analysis, per Barron’s. First, consensus earnings estimates for the tech sector have remained remarkably stable even as prices dropped. The S&P 500 information technology sector is still expected to deliver double-digit earnings growth in 2025, a rate that outpaces every other sector in the index. Second, the valuation compression that occurred during the sell-off brought price-to-earnings multiples on several mega-cap names back toward their five-year averages — a level that, in Goldman’s framework, represents fair value rather than excess. Third, and perhaps most critically, the firm argued that capital expenditure commitments from hyperscalers on AI infrastructure signal confidence from the companies themselves, even if public market investors have grown skittish.
The capex argument deserves particular attention. Microsoft, Alphabet, Amazon, and Meta have collectively committed to spending well north of $200 billion on data centers, chips, and related infrastructure in 2025 alone. These aren’t speculative bets by cash-strapped startups. They are capital allocation decisions made by companies generating enormous free cash flow, decisions that have been reaffirmed in the most recent earnings calls even as management teams acknowledged macroeconomic uncertainty. When the people running these businesses are accelerating investment, it tells you something about their internal demand forecasts that quarterly guidance language often obscures.
Not everyone agrees with Goldman’s optimism, of course.
Morgan Stanley’s Mike Wilson has been more cautious, warning that the concentration of market returns in a handful of tech names creates fragility. If any one of the Magnificent Seven stumbles — a regulatory setback, a product cycle miss, a margin compression event — the ripple effects on index-level performance could be severe. JPMorgan’s Marko Kolanovic, before his departure from the firm last year, had similarly warned about the risks of crowded positioning in mega-cap tech, a thesis that found some vindication during the early-2025 drawdown.
And then there’s the tariff question, which hasn’t gone away. The Trump administration’s trade policies have introduced a layer of uncertainty that is particularly acute for technology companies with global supply chains. Apple manufactures the vast majority of its products in China. Nvidia’s most advanced chips face export restrictions that limit sales to Chinese customers. Semiconductor equipment makers like Applied Materials and Lam Research are caught in the crossfire of U.S.-China technology competition. Goldman’s note, according to Barron’s, acknowledged these risks but argued they are more than reflected in current prices.
That’s the crux of any “buy the dip” thesis: not that risks don’t exist, but that the market has already priced them in and then some. It’s a confidence game built on valuation math, and Goldman’s math is specific. Kostin’s year-end S&P 500 target implies meaningful upside from current levels, with technology expected to be a primary driver of that recovery. The firm recommended that investors increase their allocation to the sector, particularly in names with strong free cash flow generation and defensible competitive positions.
Recent market action has lent some credence to the call. Since hitting their lows in April, several mega-cap tech stocks have bounced sharply. Nvidia has recovered a significant portion of its drawdown, buoyed by continued demand signals for its Blackwell GPU architecture. Meta surged after reporting first-quarter results that beat expectations on both revenue and operating income. Even Apple, which faces perhaps the most direct tariff exposure of any Magnificent Seven member, has stabilized as investors priced in the likelihood of supply chain adjustments rather than worst-case scenarios.
The earnings season that just wrapped provided fuel for the bulls. According to FactSet data, the information technology sector reported year-over-year earnings growth of approximately 15% in the first quarter, comfortably above the S&P 500 average. Revenue growth was similarly strong. And forward guidance, while cautious in tone, didn’t contain the kind of dramatic downward revisions that bears had feared. Companies talked about uncertainty. They didn’t slash forecasts.
So where does this leave the average institutional investor trying to position a portfolio for the second half of 2025?
Goldman’s advice is clear: overweight tech. But the how matters as much as the what. The firm drew a distinction between mega-cap names with proven AI monetization paths — think Microsoft’s Azure AI services, Alphabet’s cloud and search integration, and Nvidia’s data center dominance — and more speculative plays further down the market-cap spectrum where the AI narrative is longer on promise and shorter on revenue. The recommendation wasn’t to buy everything with a semiconductor or software label. It was to buy quality at a discount.
This selectivity is notable because it acknowledges something the market learned painfully in early 2025: not all AI stocks are created equal. The initial frenzy that sent anything AI-adjacent soaring in 2023 and 2024 gave way to a more discriminating market in which investors started demanding proof of revenue traction, not just TAM slides in investor decks. Companies like Palantir and C3.ai, which had ridden the AI wave to extreme valuations, saw sharp corrections when growth didn’t match the hype. Goldman’s framework implicitly steers investors away from these names and toward the infrastructure layer where spending is already flowing.
There’s a historical parallel worth considering. In the early 2000s, after the dot-com bust, the conventional wisdom was that technology stocks were permanently impaired. Investors who bought Microsoft, Cisco, and Intel at their 2002 lows had mixed results — Cisco and Intel never reclaimed their peaks, but Microsoft eventually became the most valuable company in the world. The lesson wasn’t that all tech recovers. It was that the strongest businesses, the ones with durable competitive advantages and the financial resources to invest through downturns, tend to emerge even stronger on the other side.
Goldman is essentially making the same bet now, with a different cast of characters.
The macro backdrop adds another dimension. The Federal Reserve has signaled it is in no rush to cut interest rates, which in theory should pressure growth stock valuations by raising the discount rate applied to future earnings. But tech bulls argue that the sector’s near-term earnings power is strong enough to overcome higher rates — that these aren’t long-duration, no-profit growth stories but rather cash-generating machines trading at reasonable multiples. The Magnificent Seven collectively generate hundreds of billions in annual free cash flow. They’re not dependent on cheap financing to fund their operations or growth plans.
And the AI spending cycle shows no signs of slowing. Recent reports from semiconductor industry trackers indicate that demand for high-bandwidth memory, advanced packaging, and data center networking equipment remains elevated. Taiwan Semiconductor Manufacturing Company, which fabricates chips for Nvidia, Apple, and AMD among others, reported strong April revenue figures that suggest the supply chain is running at high utilization rates. If anything, the bottleneck in AI infrastructure isn’t demand — it’s supply.
That supply constraint is itself a bullish signal for the companies Goldman is recommending. When demand exceeds supply, pricing power follows. Nvidia’s gross margins, already extraordinary by historical standards, have room to remain elevated as long as customers are willing to pay premium prices for GPUs that can train and run large language models. Microsoft’s Azure margins should benefit as AI workloads, which tend to be compute-intensive and therefore higher-revenue-per-unit, become a larger share of the cloud mix.
Critics will point out that Goldman Sachs is not a disinterested party. The firm earns fees from technology companies through investment banking, trading, and asset management relationships. A bullish call on the sector serves multiple business lines simultaneously. That’s true of every major Wall Street bank, and it’s a valid reason to treat any individual research note with appropriate skepticism. But the underlying data Kostin cites — stable earnings estimates, reasonable valuations relative to growth, massive capex commitments — can be independently verified.
The broader question is whether the technology sector’s dominance of the U.S. equity market, which now stands at roughly 30% of the S&P 500 by weight, is sustainable or whether it represents a concentration risk that will eventually unwind. Bears argue the latter, pointing to historical precedents where sector dominance proved fleeting. Energy dominated the S&P 500 in the early 1980s. Financials had an outsized weight before 2008. In both cases, the dominance ended badly.
But the bull case — Goldman’s case — is that today’s tech giants are fundamentally different from yesterday’s sector leaders. They are more profitable, more diversified, more globally entrenched, and more essential to the functioning of the modern economy. You can’t run a business without cloud computing. You can’t compete without AI. You can’t communicate without smartphones. The argument isn’t that these stocks can’t go down. It’s that their structural importance to the economy provides a floor that previous sector leaders lacked.
Whether that floor holds will be the defining investment question of 2025. Goldman has placed its bet. The market will render its verdict.
WebProNews is an iEntry Publication