Goldman Sachs: The Markets
2026-06-01 · Hosted by — · Goldman Sachs
Executive Summary
Goldman Sachs’ Chris Hussie speaks with US Tech Media and Telecom sector specialist Pete Callahan about whether the parabolic tech rally can continue after the NASDAQ posted its second-best start to a year in 25 years. Callahan identifies three hallmarks of the current rally — narrow breadth, high velocity, and earnings-anchored valuations — and argues that as long as earnings revisions continue to come in strongly for semiconductors, the group remains investable on pullbacks. He flags US Internet as the one lagging area worth watching as oil prices ease and consumer sentiment improves.
Key Stories & Changes
1. Dissecting the Tech Rally: Three Distinguishing Features
NASDAQ up ~20% from March 30 lows — second-best start to a year in over 25 years
Pete Callahan’s three hallmarks:
Semiconductors up nearly 80% this year — best year since 1999
CapEx estimates for calendar 2027 revised up ~20% this quarter → now north of $900 billion for 2027
2. Software: Mixed Results Creating Desirable Dispersion
Q1 software results were mixed — “some good, some not good”
Callahan frames this as a positive development: dispersion enables stock picking, which investors prefer over correlation-1 pressure across the group
Key debate dimensions in software:
Subscription/seat models vs. consumption models
Incumbents vs. AI-native startups at the point of sale
Noisy macro backdrop (Iran conflict, new AI budget cycles) adding near-term choppiness
Winning thesis: companies that can demonstrate AI is helping their business and driving faster revenue growth get re-rated; those that can’t are repriced lower
“Whether you’re able to indicate that AI is helping your business and driving faster revenue growth — if it is, the market is very happy to re-rate shares”
3. Semiconductors at 1999 Levels — Does It Matter?
Best year since 1999 raises the .com bubble question directly
Callahan’s response: earnings revisions are the metric that matters over the medium term
As long as strong revisions keep multiples in check (expansion is limited when EPS grows as fast as price), the group remains investable
Investors are comfortable adding on pullbacks or into positioning pressure while revisions remain positive
Extended supply constraints: companies receiving orders pushing out to calendar 2027, providing multi-quarter demand visibility
4. US Internet as the Potential Catch-Up Trade
US Internet has lagged software year-to-date — “probably surprising to people”
Three headwinds: sources-of-funds debates; ongoing AI investment cycles (how much companies spend); health-of-consumer questions
Tailwinds improving: oil prices resetting off highs (easing consumer pressure); increasing product innovation from AI integration by internet companies
“Cleaner positioning” in US Internet — less crowded than semis
Callahan: “I’ll be watching the US Internet sector from here”
5. Macro and Calendar Watchlist for June
NFP and CPI data are the primary macro data points to watch
Tech has a series of user conferences and industry events across software and semiconductors in June
These events will set the temperature on generative AI adoption and enterprise demand “into the summer months”
On rates: historically tech is correlated with rates; currently the market is “OK with it” — the cost inflation AI supply chains have had to absorb makes the group somewhat less rate-sensitive than prior cycles
Trends Identified
1. Earnings-Backed Rally Structurally Different From Speculative Cycles
Callahan’s observation that AI stocks within the S&P have risen roughly in line with their earnings growth is the key insight distinguishing this cycle from 1999. When stock prices and earnings move in tandem, multiple expansion is limited — which paradoxically makes the rally more durable. Investors are paying for earnings power, not dreams. This earnings-anchoring thesis, if it holds, suggests the cycle can extend further as long as AI infrastructure orders continue to push out and CapEx estimates continue to rise.
2. Supply Constraints Extending Demand Visibility Unusually Far
The fact that semiconductor and AI infrastructure companies are receiving orders out to calendar 2027 represents an unusual degree of forward demand visibility that is keeping the sector’s investment thesis intact even at elevated multiples. This is qualitatively different from typical cyclical demand: these are long-lead-time capital projects with committed customer budgets, not spot market orders.
3. US Internet Positioning for a Catch-Up Trade
With semis and hardware having already moved dramatically, the “next trade” framing points to US Internet as an underowned sector with improving fundamentals. Consumer-facing internet companies benefit disproportionately from oil price declines (which improve real incomes) and are increasingly integrating AI into their product offerings. Cleaner positioning (less momentum, less crowded) could make this the next sector to see a sharp re-rating. —-
Sentiment Analysis
Overall Market Sentiment: Constructively Bullish
Callahan’s tone is measured and data-driven — bullish on semis while they remain earnings-anchored, watching software for dispersion opportunities, and identifying US Internet as an emerging opportunity. No alarm bells on valuation, but no abandonment of discipline either.
Risk Factors Highlighted
Narrow breadth: Only ~50% of NASDAQ stocks positive despite 20% index gain — vulnerable to reversal if leadership falters
High velocity: Second-best start in 25 years means mean-reversion risk is elevated; pullbacks could be sharp
Software bifurcation risk: Companies failing to demonstrate AI-driven growth are being punished; broad software ETF ownership is now risky
Macro choppiness: Iran conflict and new AI budget cycles creating near-term noise in software results
Consumer health uncertainty: US Internet’s catch-up trade depends partly on oil prices staying low and consumer spending recovering
Rate re-rating risk: While market is currently OK with rates, a re-acceleration in inflation (especially from conflict) could bring rates back into the equation
This episode was covered in today’s The Market Signal — 2026-06-01, a cross-source synthesis of multiple podcast reports.