The narrative of US tech stocks dominating markets is due for a reassessment. A recent global strategy report from Goldman Sachs highlights an ongoing paradigm shift: while the bull market persists, its primary drivers have fundamentally changed.
According to analysts at Goldman Sachs, including Peter Oppenheimer, a long-standing era where financial assets significantly outperformed real assets is reversing. For the first time in 2025, the US market has lagged behind other major global markets, accompanied by a strong resurgence in emerging markets. Global markets are in a distinct late-cycle "optimism" phase, but are experiencing intense internal divergence:
* **Asset Rotation:** Capital is flowing from overcrowded US technology stocks towards emerging markets (EM), commodities, and value stocks in the "old economy." * **AI Disenchantment and Divergence:** Despite AI capital expenditures reaching $659 billion, concerns about Return on Investment (ROI) are growing. The "Magnificent Seven" stocks no longer move in unison, showing stark internal performance differences. * **Software Sector Crisis:** The emergence of AI agents is seen as disruptive to traditional SaaS models, leading to significant valuation compression in the software sector. * **Real Assets Reign:** Growth in the virtual world is now constrained by the physical world (energy, data centers), causing a surge in capital expenditure (Capex) for utilities and capital-intensive industries, thereby boosting the value of real assets.
The global bull market continues, but the US market is no longer the sole protagonist. A historic shift occurred in 2025. Although the S&P 500 performed strongly, the US market underperformed other major markets in both local currency and US dollar terms. Data shows that the Europe STOXX 600 Index, Japan's Topix Index, and the MSCI Asia Pacific ex-Japan Index all posted gains exceeding those of the S&P 500.
More notably is the "comeback" of emerging markets. Long-term underperformers, emerging markets have seen significant revaluation relative to developed markets. The MSCI Emerging Markets Index relative performance index against developed markets has climbed from 100 at the start of 2025 to nearly 120. Goldman Sachs analysts believe this trend is driven by a combination of improving macro and micro drivers, with relative valuations remaining attractive, and expect this momentum to persist.
Markets are displaying remarkable resilience, largely ignoring heightened geopolitical events and a surge in policy uncertainty. This strength is primarily attributed to robust fundamentals: increased confidence in the global economy, with cyclical sectors outperforming defensive ones. US corporate earnings growth remains strong, with growth this fiscal quarter exceeding 12%, 5 percentage points above market consensus, marking the fifth consecutive quarter of double-digit growth. This growth wave is no longer solely led by mega-cap tech stocks. The median year-over-year growth for S&P 500 constituent companies is 9%, with 59% of companies beating expectations. Analysts have unusually raised full-year 2026 earnings forecasts as early as the first quarter, a trend particularly pronounced in emerging markets.
A critical signal for tech investors is that the AI wave is transitioning from "broad prosperity" to "ruthless differentiation." Market expectations for AI hyperscaler capital expenditure in 2026 have been revised up to $659 billion, a 60% increase from 2025. While the absolute amount is rising, the growth rate is expected to slow compared to last year. However, this massive investment has sparked investor skepticism about its ability to generate sufficient returns, leading to slower returns for tech stocks. The return rate for the "Magnificent Seven" has declined annually: surging 75% in 2023, dropping to about 50% in 2024, and falling below 25% in 2025. Simultaneously, the "Magnificent Seven" no longer move together. In 2025, Google's return was approximately 66%, contributing 15% to the S&P's total return; Microsoft, Meta, and Tesla delivered only low double-digit returns; while Apple and Amazon fell to single-digit returns, underperforming the broader market. The correlation between these giants' stock prices has dropped sharply.
The wave of AI innovation is not only creating divergence among hyperscalers but also posing a disruptive threat to existing tech companies. The release of new intelligent agent platforms, such as Anthropic's Claude Cowork and OpenAI's Frontier, has raised market concerns about the disruption of other tech business models, particularly in the software sector. Entering 2026, market expectations for the software sector were at their highest level in at least 20 years, with consensus expecting a two-year forward revenue growth rate of 15%, more than double the 6% expected for the median S&P 500 company. However, the US software sector plunged 15% last week (down nearly 30% from its September peak), reflecting a significant downward revision of record-high profit margins and growth expectations by investors. This valuation reset signals a fundamental reassessment of the software sector's growth prospects.
A profound transformation is underway: for the first time in the twenty-five years since the internet's commercialization, technology growth prospects are significantly dependent on physical assets—data centers and energy supply. As hyperscaler capital expenditure surges, this spending is spilling over into other industries, particularly sectors like utilities that are building the infrastructure upon which the future growth of leading tech giants depends. Data shows that capital expenditure-to-sales ratios are rising for developed market utilities, telecommunications, and commodity producers. These "old economy" sectors have suffered from capital expenditure deprivation since the financial crisis due to overcapacity and historically low returns. AI infrastructure investment, coupled with a renewed boost in defense spending, is reigniting investment returns for many long-lagging physical assets, just as investors worry about returns slowing from record highs in the tech sector. This has led to a significant decline in the valuation premium of capital-light enterprises relative to capital-intensive ones.
The reassessment of growth rates in parts of the tech sector, combined with persistent inflation and higher real interest rates, has renewed investor focus on long-overlooked opportunities in the value stock market. Once considered "value traps," some of these stocks are successfully transforming into "value creators" by generating higher cash flows and returning more capital to shareholders via dividends and buybacks. The 12-month forward P/E premium of growth stocks over value stocks has declined in the US, Europe, Japan, emerging markets, and globally. Since the start of 2025, the performance pattern of financial assets versus real assets has significantly reversed: gold, emerging markets, the Topix Index, industrial metals, and value stocks have been the top performers. This contrasts sharply with the period from the post-financial crisis era until the end of the pandemic, which was dominated by the Nasdaq, S&P 500, and tech stocks.
The era from the post-financial crisis period until the pandemic's end, dominated by exceptional tech growth and zero interest rate policies, drove a record gap between returns on financial assets and real assets. Abundant liquidity and historically low capital costs meant that investments with the longest duration—Nasdaq, S&P 500, and tech stocks—performed best. Between 2009 and 2020, the Nasdaq surged over 900%, while prices in the real economy, such as commodities, wages, and GDP, saw limited increases. However, the current landscape is markedly different. Although US corporate earnings growth remains robust—12% growth this quarter, 5 percentage points above consensus, with median S&P company growth at 9% year-over-year and 59% of companies beating expectations—the sources of growth are broadening. More importantly, full-year 2026 expectations have been unusually revised upward in the first quarter, with even stronger revisions in emerging markets. Goldman Sachs believes equities are likely to remain the best-performing asset class, but the drivers and return opportunities are fundamentally expanding. While overall index returns may moderate, more diversified opportunities exist, offering better prospects for risk-adjusted returns and alpha generation. Investors need to re-examine long-held allocation habits and achieve broader diversification across geographies, sectors, and style factors to capture opportunities in this era of major market transformation.