Goldman sees 15-year market concentration peak as rotation broadens

Global equity markets are entering a structural rotation away from US megacap tech after more than 15 years of extreme concentration, with diversification regaining real returns.

Global equities are rotating away from US megacap tech after 15-plus years of concentration, with US stocks the weakest major region since early 2025, Goldman Sachs said. Japan, Asia-Pacific, and emerging markets posted the strongest local-currency gains over the same period, while the free cash flow yield advantage of US megacap tech over European value markets has narrowed sharply.

"The market is experiencing a healthy normalization process, with returns spreading across both geography and sectors," Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said in a report titled "Momentum, Rotation, and Value in Growth." He said the rotation is driven by earnings fundamentals rather than valuation expansion or falling interest rates.

The AI capex supercycle triggered by ChatGPT has altered the financial profile of hyperscalers including Microsoft, Amazon, and Alphabet. Massive capital expenditures continue to erode free cash flow, forcing these companies to tap debt and equity markets. This has compressed the free cash flow yield premium that US megacap tech held over European and other value-oriented markets, providing fundamental support for the recent performance rotation. Higher government debt, persistent inflation, and increased bond supply have pushed up the cost of capital, making earnings growth the primary driver of equity returns.

The spillover from hyperscaler and chipmaker capex, combined with government spending on energy security, critical infrastructure, and defense, has created a capex supercycle that is revaluing long-neglected traditional sectors. Industrial stocks have seen both growth expectations and valuations improve. Across regions, ROE remains elevated while stock correlation declines, creating a more favorable environment for alpha generation as market leadership rotates.

Concentration inflection reshapes allocation logic

The 15-year period following the financial crisis saw tech stocks deliver outsized returns through asset-light business models, cloud and software demand, and valuation premiums in a zero-rate environment. That era is ending. Oppenheimer's core judgment is that after more than a decade of extreme concentration in both market cap and earnings, global equities are undergoing a healthy normalization that will continue to evolve.

The report also notes that earnings estimate revisions have continued to trend upward, providing a second layer of fundamental validation beyond the earnings themselves. This double confirmation strengthens the case that the current rotation is sustainable rather than a short-term tactical shift.

For investors, the implication is clear: single-bet strategies on US megacap tech are losing their cost-effectiveness, while balanced allocation across regions and sectors is re-establishing its value proposition. Despite the rotation, Oppenheimer maintains that the US remains the most attractive market globally on an ROE basis, even as its overall P/E has declined because of tech sector drag. The collapse of momentum strategies and declining stock correlation are accelerating the leadership transition, creating a more favorable environment for selective stock picking within growth sectors.

This article is for informational purposes only and does not constitute investment advice.