Tech Valuations Surprisingly Accommodating: Goldman Sachs Highlights AI and Cybersecurity Growth Potential in QQQ and QQQM

Goldman Sachs Asset Management notes that despite significant recent returns, the tech sector trades at a slight discount to its long-term averages. The strong earnings power of the largest companies, particularly the Magnificent 7, provide near-term support to these levels. QQQ and QQQM have long been viewed as proxies for AI, solidifying their status as valid plays on AI's intersection with other industries. Cybersecurity remains a critical concern for companies due to increasingly sophisticated AI-powered cyberattacks and is a foundational sector that underpins trust and operational continuity across all industries. Some companies outside the Magnificent Seven may be more attractive on valuation and have appealing long-term growth traits.

The tech sector, despite significant recent returns, currently trades at a slight discount to its long-term averages. This discount presents both opportunities and considerations for investors, particularly those interested in AI-driven growth and cybersecurity. Goldman Sachs Asset Management notes that the strong earnings power of the largest companies, particularly the Magnificent 7, provides near-term support to these levels [1].

The Magnificent 7, comprising Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), collectively account for nearly 34% of the S&P 500’s market capitalization [3]. These companies are leaders in their respective segments and are heavily investing in AI, which could fuel substantial growth in the coming years.

Meta Platforms, for instance, uses AI to enhance user engagement on its social networks, leading to higher revenue. Similarly, Alphabet's Google Search and Google Cloud segments are being transformed by AI, driving significant growth [2]. NVIDIA, the dominant supplier of AI chips, has seen its market capitalization rise due to its role in AI innovation [3].

Despite these positive trends, some investors might be cautious. NVIDIA recently reported a relatively meager beat of consensus earnings estimates, raising concerns about AI-stoked demand softening [3]. However, this could be a temporary setback, and the long-term potential of AI remains strong.

Moreover, the tech sector's intersection with other industries, particularly through QQQ and QQQM, solidifies their status as valid plays on AI's broader impact. Cybersecurity remains a critical concern due to increasingly sophisticated AI-powered cyberattacks. Companies outside the Magnificent Seven may offer more attractive valuations and appealing long-term growth traits, particularly in the cybersecurity sector.

In conclusion, while the tech sector's slight discount presents opportunities, investors should remain cautious and consider the long-term potential and risks of AI-driven growth and cybersecurity concerns. The Magnificent 7 remains a strong investment option, but diversification into other sectors may also provide attractive returns.

References:
[1] https://www.investing.com/news/stock-market-news/goldman-sachs-starts-brookfield-at-buy-sees-excess-capital-fueling-buybacks-4219371
[2] https://www.nasdaq.com/articles/when-you-look-back-few-years-youll-wish-youd-bought-these-2-magnificent-seven-stocks
[3] https://www.forbes.com/sites/bill_stone/2025/08/31/nvidia--magnificent-7-too-hot-to-handle/