Tech Stocks Crashed — But Wall Street Says The Worst May Be Over - Goldman Sachs Group (NYSE:GS), Fidelit

If you’ve been hanging on to your tech stocks over the past year, then you've probably felt it.

The first quarter of 2026 wasn't kind. Software names got hit hard. Some semiconductor stocks pulled back. Even the best-performing tech firms were selling off, such that everyone started to ask:

What if the AI isn't just boosting these companies, but is disrupting them?

And that was all it took. A fear-based rotation began in out-of-key tech sectors. And for a little while, there was a very real consideration of one of its most dominant themes.

But there was something else happening. While the prices were falling, the fundamentals were moving in the opposite direction.

The Sell-Off Was Real, But So Was the Overreaction

Among the biggest losers in 2026 were cybersecurity stocks and, generally speaking, the software industry as well. Much of this was due to the overall market sentiment. Investors feared that artificial intelligence, specifically, was going to put a lot of existing technology companies out of business.

The fears took over the industry almost overnight. The cybersecurity sector became "victims" of those headlines. Although it was never about the actual demand going into the gutter, it was the valuation fell dramatically.

But it wasn’t even just the smaller players. Microsoft, one of the leaders in the field, lost almost 20% YTD before turning around and delivering a spectacular rally of 13% in one week.

There was something to be said about all of this. Clearly, this was about fears and the fast reallocation of funds.

But investors did not leave tech entirely. Money flowed into semiconductor and AI-infrastructure businesses. Large-cap stocks that were seen as direct beneficiaries of the AI boom also saw inflows. And that left software out in the cold.

Earnings Story Tells a Completely Different Story

Now here's the part most people miss. As tech stocks declined, earnings estimates were going up.

According to Goldman Sachs (NYSE:GS), the technology industry recently had its worst-ever period for relative gains in 50 years.

But at the same time, Tech companies had the largest positive earnings revisions out of all industries in 2026. In addition, the sector is forecasted to be the leader in earnings growth in the S&P 500 Index, and net profit margins are estimated to increase to 28.9%, which would be the highest across all industries.

And this is not all. Spending on artificial intelligence is expected to fuel 40% of earnings growth in the S&P 500.

So while investors were selling tech stocks out of fear, the actual earnings engine behind those companies was getting stronger. That disconnect is exactly why Goldman is calling this a "technology value opportunity."

Valuations Have Reset And That Changes Everything

Let's talk valuations, because this is where things really shift.

For many years, there had been some kind of premium attached to tech stocks, sometimes it was a hefty one. And that worked as long as performance kept delivering.

However, after the last decline, it is clear that this premium has been heavily reduced.

In fact, the global tech sector is now valued below the overall market using a P/E ratio. This is quite unusual, considering that the sector trades above most other industries, including consumer discretionary and industrials.

It is the same even in the US market, where the valuation difference between the top tech firms and the general market has drastically decreased.

So now you have a situation where earnings are growing, and margins are strong, but prices have come down. That's not something you see often in a sector this dominant.

So Why Did This Happen in the First Place?

There were other fears besides that of AI.

Firstly, capital investment went up. The top U.S. hyperscalers invested around $400 billion in their AI infrastructure in 2025, representing a 70% increase from the previous year. It caused worries related to ROI. In the past, infrastructure booms have not always benefited early investors.

Second, investors started questioning long-term growth assumptions. If AI changes how software is built and used, what does that mean for the value of existing companies?

The capital was reallocated. There was less capital flowing into the technology sector and more money heading into industries that were immediately impacted by the increase in AI demand, like energy, industrials, and materials.

Lastly, there was a shift seen in balance sheets. An increase was seen in debt within large tech firms, causing uneasiness among investors who have enjoyed perfect balance sheets for a few years now.

Combine all the above factors, and it creates a logical reason for a sell-off. But again, the earnings didn't break.

The Market May Already Be Reversing Course

In case you were thinking whether the worst was over, the stock market is already beginning to give an answer.

The Nasdaq Composite Index managed to touch record levels at over 24,000, indicating renewed appetite for risks.

There was also a strong rebound in the tech sector, where stocks rose over 6% compared to early February levels. This outpaces the overall growth in the broader S&P 500 index.

Even some of the more reserved analysts have already begun to turn positive. They now believe that the idea that artificial intelligence would kill the software industry is exaggerated. Others, like investor Michael Burry, are turning bullish after what they see as excessive declines.

And once sentiment changes after a big fall, things move swiftly. So the actual question becomes this; if prices fall while profits remain intact, what would that result in? An Opportunity.

This allows us to identify an industry that is undervalued compared to its fundamentals. That's the setup Goldman is pointing to. And this doesn't essentially mean "buy everything."

It means being selective. Looking at areas that were hit hardest, like software, but still have strong demand and long-term growth drivers like cloud computing and AI adoption. Because if those factors continue, this was only a temporary setback for the tech industry.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.