Big Tech Stocks at Lowest Valuation Premium in Six Years, Says Goldman Sachs' Kostin

Big Tech shares have hit their most attractive relative valuation levels in six years, according to David Kostin, Chief U.S. Equity Strategist at Goldman Sachs. The once-expensive "Magnificent 7" stocks are now trading at a significantly reduced premium compared to the rest of the S&P 500.

Big Tech Valuations Fall to Lowest Premium Since 2018

Despite consistently strong earnings, the average forward price-to-earnings (P/E) ratio for the Magnificent 7 has dipped to 28—just a 43% premium over the 20x P/E multiple for the remaining 493 stocks in the index. This valuation gap ranks in the 30th percentile over the past decade, marking the lowest relative pricing since 2018.

Strong Earnings Amid Share Price Lag

Kostin highlights a notable divergence between earnings performance and stock prices. Excluding Nvidia, which is yet to report, the Magnificent 7 delivered 28% year-over-year EPS growth in Q1 2025, far outperforming the 9% growth posted by the broader S&P 500.

These mega-cap tech firms also posted the largest earnings surprises since Q2 2021, beating consensus estimates by 16%.

Tech Stocks Expected to Outperform in 2025—But With Smaller Margins

While Kostin remains bullish on Big Tech for 2025, he cautions that the earnings growth advantage these companies hold over the broader market is expected to narrow. He predicts the growth gap will shrink from 32 percentage points in 2024 to just 2 points by 2026.

Still, Kostin suggests analysts may be underestimating future growth. “Consensus forecasts may again prove too conservative,” he noted, referencing prior years where the tech sector outpaced initial projections.

Mid-Cap Stocks Offer Long-Term Value

In addition to his tech outlook, Kostin sees long-term potential in mid-cap equities. While near-term performance may remain muted, historical trends show that mid-cap companies tend to deliver faster earnings growth and superior total returns relative to large-cap peers—all while trading at more attractive valuations.

“Despite current headwinds, mid-caps represent a compelling long-term investment opportunity,” Kostin wrote in his latest client note.

(Sources: investing.com, reuters.com, ChatGPT)