Episode summary
Tech Comeback Ahead?
The Markets
· · Hosts: Mike Washington · Guests: Peter Callahan
Summary
US tech has lagged the market this year even as enthusiasm for generative AI stays high. Peter Callahan said the underperformance is partly a rotation trade: investors have shifted toward more defensive names and physical assets, while the AI narrative has moved from the buildout phase to the implementation phase. He framed that shift as a change in where the market is focusing, not a rejection of AI itself.
On fundamentals, Callahan argued the underlying earnings picture is still strong. He said communications services, information technology, and the Mag 7 are still producing best-in-class earnings and revenue growth, but the market has become more demanding about future execution. Higher capex expectations have not changed the thesis, in his view, but they have raised the stakes because companies now need to convert spending into revenue and product delivery over the next 6, 12, and 24 months.
He was also constructive on software after a roughly 30 percent decline, saying the selloff has been broad and that the next phase should be about dispersion rather than a one-way sector move. Callahan ended on the bull side for tech, pointing to cleaner valuation, a weak relative start for the Nasdaq versus the Russell, and what he sees as a favorable setup for large-cap tech if execution improves.
Key takeaways
- Peter Callahan said tech’s 3% to 4% year-to-date decline reflects rotation and a shift from AI buildout to AI implementation.
- Callahan said tech earnings remain strong, with communications services, info tech, and the Mag 7 still leading the market in growth.
- He said higher capex is not a thesis changer for the Mag 7, but it raises the pressure to deliver revenue over the next 6, 12, and 24 months.
- Callahan said software is down about 30% this year and expects the next stage to be stock-specific dispersion rather than a broad sector move.
- He put himself in the bull camp for tech, citing cleaner valuation and the Nasdaq’s unusually weak relative start to the year.
Notable quotes
“The tech sector, down about 3 or 4 percent this year, has lagged the market by a fair bit”
“I think what it does is it just raises the stakes to some degree, right”
“I think we're starting to move to a point now, as you kind of get through earnings season, you get into conference season, that type of dialogue in the market, and it's about dispersion, right”
“this is a decade-long journey, if not longer”
“so, put me on the side of the bull camp for tech from here”
How the episode opens
This is The Markets. I'm Mike Washington. Today is Thursday, February 19th and I'm on the Goldman Sachs equity trading floor joined by my colleague Pete Callahan.
Pete is our US Technology, Media and Telecommunications sector specialist in Global Banking & Markets. Pete, thanks for joining me. Glad to be here.
If I think about 2026 and conversations both personally and professionally, AI advancements are front and center any way you look. Yet when I look at equity markets, tech specifically, it's been a big underperformer year-to-date. What do you make of that?
And what's been standing out to you? Yeah, it's a good question. You wouldn't know it from looking at the media and the press that tech's been under pressure this year, just given all the excitement around generative AI, but it has been, right?
The tech sector, down about 3 or 4 percent this year, has lagged the market by a fair bit. And I think what's going on this year, it's been a lot about rotation, right? So, you've had this broadening-out dynamic in the market that lots of investors have talked about.
A lot of that's tied to a shifting or, frankly, more constructive view on the US economy in 2026. But you've also had this transition, I think, in the AI story from you know, the last three years was really about the build cycle. You heard a lot about picks and shovels.
This year it's been a lot more about the implementation side of AI. And the market's starting to get a little bit more focused on that. Both on the positive side and on the potential negative side.
And so, you've seen this kind of rotation into either more defensive or physical assets in the market in calendar '26 as investors start to think about where and how AI is deployed across enterprises in the consumer layer.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai optimism
- us tech sector lag
- bullish reversal
- stock rebound
Companies and tickers mentioned
- GS
- Goldman Sachs
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Watch “Tech Comeback Ahead?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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