Tech Valuations Surprisingly Accommodating

Goldman Sachs Asset Management asserts that despite the Nasdaq-100's significant gains and the dominance of the Magnificent Seven, the broader tech sector is not overvalued, trading at a slight discount to its long-term averages, supported by strong earnings power. ETFs like Invesco QQQ Trust (QQQ) are positioned to benefit from key growth drivers, specifically AI's transformative impact on consumer internet and the critical, rapidly expanding cybersecurity sector, with some non-Magnificent Seven components offering appealing valuations.

Analysis

Despite the Nasdaq-100 Index's 87.4% gain over the three years ending August 28, analysis from Goldman Sachs Asset Management (GSAM) posits that the technology sector is not broadly overvalued, trading at a slight discount to its long-term averages. This perspective is supported by the sustained, strong earnings power of the largest companies, especially the Magnificent Seven, which provides near-term validation for current valuation levels. ETFs like the Invesco QQQ Trust (QQQ) and QQQM are highlighted as key vehicles to access multiple growth drivers. A primary theme is Artificial Intelligence, which is reshaping the consumer internet sector—a segment comprising over 13% of the ETFs' holdings—by transforming advertising, gaming, and e-commerce. Concurrently, GSAM emphasizes cybersecurity as a critical, non-discretionary investment area, viewing it as a "foundational sector" essential for operational continuity amid rising AI-powered cyber threats. The analysis further notes that attractive valuations and long-term growth traits can be found in companies within the index beyond the well-known Magnificent Seven, indicating broader underlying strength.

Key Decisions for Investors

• Investors who are underweight technology due to valuation concerns should re-evaluate their positions, as analysis suggests the sector is not broadly overextended and is supported by strong fundamental earnings.
• Consider looking beyond the Magnificent Seven for opportunities within the Nasdaq-100, as the index contains attractively valued companies with appealing long-term growth profiles.
• Utilize ETFs such as QQQ and QQQM for strategic, long-term exposure to the dual secular growth themes of Artificial Intelligence and the foundational, non-discretionary spending in the cybersecurity sector.