A generational buying opportunity has opened up for U.S. tech stocks, says Goldman Sachs

Tech stocks are suffering their worst stretch of performance against the broader market in half a century.

As stock-market gains increasingly bolster countries, sectors and factors beyond tech, the result is that investors are now faced with the best opportunity in decades to buy the beaten-down sector, says our call of the day from a team led by Goldman Sachs’s chief global equity strategist, Peter Oppenheimer.

“The U.S. equity market no longer looks so expensive on a relative basis. Its earnings have remained strong while it has suffered a correction,” according to Goldman.

For example, the team there says, there’s been a reset of the price-to-earnings-to-growth ratio (PEG) — comparing a stock’s price against how quickly analysts expect the company’s earnings to grow over the coming years — between the U.S. and the rest of the world. That follows years of decoupling due to a U.S. exceptionalism narrative.

The PEG ratio for tech is now below that of the global aggregate market, another green flag for budding “valuation opportunities.” The level of pessimism has reached a point where tech’s trailing PEG is implying “future earnings will be much weaker and is as low as the trough after the tech bubble burst in 2003-05.”

The concerns over hyperscalers’ capital spending and AI disruption that have hit software stocks and some others in tech are among factors that have led to investors re-rating long neglected “old economy” companies, such as energy, basic resources, chemicals, healthcare and industrials.

While the strategists say those sectors are deserving of higher values, tech is being punished disproportionately despite strong growth rates. The valuation for the hyperscalers like Amazon and Alphabet, for example, is now close to the same as the rest of the S&P 500.

“Globally, the IT sector now has a P/E below consumer discretionary, consumer staples and industrials. Unlike most sectors, its valuation premium relative to history has also fallen sharply,” they said.

Even amid worries about rising capital expenditure and lower prospective returns, the return on equity for these stocks remains high, with earnings revisions more positive than for any other sector. The result is a record gap between performance and underlying earnings growth for tech.

“While a severe shock to credit availability or hyperscaler revenues could jeopardize this spending, analyst estimates for the magnitude of the earnings tailwind created by those investments have only increased during the past few weeks,” said Goldman.

The team at Goldman also reiterate its lack of bubble concern, noting that valuations are still lower than what was seen before the 2000 tech bubble and the 1970s “Nifty Fifty” bust. Unlike in past bubble setups, the market hasn’t been flooded with tech IPOs, with those to come likely to offer justification for differentiating within the sector.

The Iran war is offering yet one final reason to buy tech, because the longer disruption to Strait of Hormuz shipping traffic continues, the higher the chance of a “perceived growth shock” that will limit interest-rate rises.

“Given the relative insensitivity of the cash flows in the technology sector to economic growth, and the benefit it would derive on any rally in bond yields, this sector might prove to be more defensive over the next few months,” said Goldman’s Oppenheimer and his team.

Read: U.S. assets and gold are being sold offshore as the world scrambles to afford higher oil prices

Losses for U.S. stocks are sliding and oil prices CL.1 BRN00 are surging, as investors watch developments in the Middle East.

U.S. President Donald Trump’s 8 p.m. Eastern deadline looms for Iran to open the Strait of Hormuz or face strikes against its power plants and bridges that Trump vowed would be devastating.

Iran has demanded a permanent end to attacks. Its ambassador to Pakistan also reportedly said efforts by the mediator country were reaching a “critical sensitive stage.” Iranian media reported explosions on Kharg Island, a key site for Iran’s oil industry.

New orders for manufactured durable goods fell 1.4% in February, by more than the expected 1.1% fall. Still to come, the Federal Reserve Bank of New York’s survey of one-year inflation expectations due at 11 a.m. and consumer credit at 3 p.m.

New York Fed president John Williams will speak on Bloomberg at 8:30 a.m., followed by Chicago Fed president Austan Goolsbee at 12:35 p.m. and Fed Vice Chair Philip Jefferson at 5:50 p.m.

A $58 billion auction of three-year Treasury notes is ahead.

Health insurers rallied on an improved Medicare Advantage reimbursement rate.

Bill Ackman’s Pershing Square has offered to buy Universal Music Group NL:UMG in a deal worth around $63.5 billion.

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Shares of troubled private-credit investment group Blue Owl Capital OWL closed down 1.4% on Monday, dipping below a late 2022 low, as the chart shows. Down 43% this year, Blue Owl has become the poster child for private-credit troubles as investors pile up redemption requests amid wariness over the quality of the loans it’s made to software companies as well as the potential for artificial-intelligence disruption. Last week, one of Blue Owl’s private-credit funds said it capped redemptions at just 23% of what was requested.

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