Goldman Sachs: Monopoly of Mega-Cap Tech Stocks Crumbles, 15-Year Market Concentration Inflection Point Emerges

The highly concentrated structure of the US stock market, which has persisted for over fifteen years, is crumbling.

Peter Oppenheimer, Goldman Sachs' Chief Global Equity Strategist, pointed out in his latest report that global equity markets are undergoing a healthy normalization process, with market returns broadening simultaneously across geographic and sectoral dimensions, and the value of diversified allocation is rebounding significantly.

Since the beginning of 2025, this trend of "broadening" has accelerated markedly. The US stock market has performed the weakest among major regions, while Japan, Asia-Pacific, and emerging markets have recorded the strongest gains in local currency terms. Meanwhile, the massive capital expenditures of hyperscalers continue to erode their free cash flow yields, driving down valuations in the technology sector, while the spillover effects have boosted the growth prospects and valuations of traditional industries such as industrials.

In his global strategy report titled "Momentum, Rotation, and Value in Growth," Oppenheimer emphasized that the driver of this market rotation stems from earnings fundamentals, rather than valuation expansion or declining interest rates. He believes that the extreme concentration of market capitalization and performance, which has lasted for more than a decade, is facing a structural turning point, and opportunities for investors to generate returns from true diversification are increasing.

Tech Sector Valuations Under Pressure, Free Cash Flow Advantage Narrows

In the decade following the financial crisis, the technology sector achieved continuous leaps in profit margins and return on equity (ROE), becoming the core allocation direction for global capital, thanks to its asset-light model, the explosion in demand for cloud computing and software, and valuation premiums in a zero-interest-rate environment.

However, the emergence of ChatGPT ignited a capital expenditure race among hyperscale technology companies. Oppenheimer pointed out that this supercycle of capital expenditure is fundamentally changing the financial characteristics of the technology sector—massive investments continue to erode their free cash flow, forcing related companies to turn to debt and equity markets for financing.

Measured by free cash flow yield, the advantage of the US stock market, dominated by hyperscalers, over value-oriented markets such as Europe has narrowed significantly, providing fundamental support for the recent rotation in relative performance. At the same time, higher government debt, persistent inflationary pressures, and increased bond supply have jointly pushed up the cost of capital, making earnings growth the core driver of stock market returns.

Earnings-Driven Rotation, Traditional Industries Face Revaluation

Notably, this market broadening is not fueled by valuation bubbles or loose monetary policy, but is built on solid earnings growth. Oppenheimer emphasized that not only are earnings themselves robust, but the direction of earnings expectation revisions has also been consistently upward, providing double validation for the fundamental support of the stock market.

The massive capital expenditures by hyperscale technology companies and chip enterprises, coupled with increased fiscal spending by governments worldwide on energy security, critical infrastructure, and national defense, have jointly spawned a supercycle of capital expenditure. The spillover effects of this cycle are reactivating long-neglected traditional industries, with the growth prospects and valuations of sectors such as industrials receiving a significant boost.

At the country level, ROE across various regions remains generally high, while stock correlation is decreasing. As the leading market sectors continue to rotate, alpha opportunities are rising. Oppenheimer believes that although the overall P/E ratio of the US stock market has declined due to the drag from the technology sector, the US market remains the most attractive globally from an ROE perspective.

Concentration Inflection Point Established, Value of Diversified Allocation Returns

Goldman Sachs believes that the decline in stock correlations and the rapid unraveling of recent momentum strategies are accelerating the shift in market leadership, creating a more favorable environment for investors to select value within the growth space.

Oppenheimer's core judgment is that after more than a decade of extreme concentration in both market capitalization and performance dimensions, global equity markets are undergoing a healthy normalization, with diversified allocation once again delivering genuine returns. He expects this trend to continue evolving.

For investors, this means the cost-effectiveness of the strategy of betting solely on US hyperscale technology stocks is declining, while the logic of balanced allocation across regions and industries is being re-established.