Goldman Sachs H2 Outlook: Tech Giants Continue to Lose Favor, Semiconductors are the "Kings"!

Entering the second half of 2026, Goldman Sachs derivatives expert Brian Garrett said Thursday that investors are underweighting US tech stocks, especially the "Magnificent Seven" (Mag7). The bank believes investors are ignoring blue-chip sectors and favoring artificial intelligence (AI) beneficiaries, such as the semiconductor industry.

 

According to the strategist, the reason capital is leaving mega-cap tech is simple: spending. He believes the market now favors companies getting returns from AI investments, while remaining skeptical of those doing the spending.

 

"One of the reasons for the reduction in Mag7 positioning seems too simple, as it has been obvious for months," he wrote in his latest report. "The market is rightfully rewarding the earning companies (capex beneficiaries, semiconductors, etc.) while questioning the spending companies (hyperscale data center operators)."

 

The bank further pointed out that the market is rotating from light-asset stocks to heavy-asset stocks, raising questions about valuations and P/E ratios. Garrett noted that moves to limit spending by hyperscale operators might benefit individual companies, but will ultimately be negative for the entire market.

 

Hyperscalers like Google, Meta, Microsoft, and Amazon are pouring hundreds of billions of dollars into data center infrastructure to generate the needed computing power and maintain their dominance in the AI race.

 

Goldman Sachs now believes that unless hyperscalers show stronger earnings growth, investors may take a more cautious approach toward mega-cap tech companies. The bank also noted that options market pricing is evidence of growing concern, pointing out that the cost of downside hedging for the Invesco QQQ ETF (tracking the Nasdaq) is already much higher than equivalent levels for small-cap stocks.

 

"Underweighting large stocks seems to be a common strategy used by investors right now," Garrett added. "This cautious attitude stems from the 'Magnificent Seven' collectively underperforming the broader market in recent months."

 

In terms of year-to-date performance, the semiconductor industry has performed the best. The build-out of AI infrastructure led to chip shortages, especially in memory and storage chips, forcing companies to raise product prices while seeking long-term agreements to ensure stable supply.

 

Semiconductor manufacturers are actively responding to the huge demand expected in the second half of the year and have raised capacity to deal with shortages. Micron Technology started producing 1-alpha DRAM chips in the US this year, while Applied Materials launched a new series of chipmaking tools to help companies increase yield. Currently, the semiconductor industry's revenue is close to $1 trillion.

 

Memory stocks have been "surging" for most of 2026. Among them, the world's first actively managed ETF in the memory field—the Roundhill Memory ETF (DRAM)—has risen 141% since its launch in April. The VanEck Semiconductor ETF (SMH) rose 72%, and the iShares Semiconductor ETF (SOXX) rose 99%.

 

Meanwhile, the Roundhill Magnificent Seven ETF, which focuses on the "Big Seven," is down 7% from its peak earlier this year, while the broader S&P 500 has risen nearly 10%.