Not as crazy as 1999 yet, Goldman Sachs: There is still room for this tech bull market.

As U.S. tech stocks continue to rise, concerns about a repeat of the 2000 bubble bursting have emerged in the market. However, Goldman Sachs believes that this tech bull market still has room to grow and is far from the madness of 1999.

In its latest report on Saturday, Goldman Sachs pointed out that the short-term upward trend of tech stocks will continue. The surge in IT capital expenditures and productivity in 1994 initiated a multi-year upward trend for Direxion Nasdaq 100 Equal Weight Index shares. Compared to the sharp ups and downs of 1999 and 2000, this current rise is much weaker.

Goldman Sachs provides three reasons for the continued rise of tech stocks:

1. There is room for re-entry. Before NVIDIA announced its earnings report, Goldman Sachs' trading department noticed hedge funds reducing their holdings of tech stocks. A previous article pointed out that hedge funds had already reduced their holdings of the "Big Seven" tech stocks last quarter.
2. Tech stocks have completely decoupled from yields. The Invesco QQQ Trust has not been affected by rising interest rates.
3. We are entering a window of fewer news events and traders adopting Gamma trading strategies, indicating that the market will rise at a slower pace, with volatility compressing or normalizing.

Goldman Sachs stated that if this is a bubble now, it is one of the worst bubbles they have ever seen. Although certain parts of the market show speculative behavior, overall, at least in terms of the valuation of large-cap stocks, we are still far from bubble territory. Currently, the price-earnings ratio of Direxion Nasdaq 100 Equal Weight Index shares is 35 times, while during the late 1990s tech bubble, it reached 90 times!

• Since 2015, the "Big Seven" tech stocks in the U.S. have surged by as much as 1700%, while the S&P 500 index has only risen by 140%. Even the world's largest tech index, the Nasdaq Composite Index, has only risen by 230% since 2015.
• From a valuation perspective, tech stocks are not expensive. Taking software stocks as an example, the EV/NTM (enterprise value to next twelve months sales) ratio is still below the 5-year median, but is currently on par with the 10-year median.
• The position of large growth tech companies is at the 94th percentile, slightly below the peak in 2021.

So, how high are hedge funds positioned in the tech industry? Goldman Sachs pointed out that it's quite high... but not necessarily at an extreme level.

• The long/short ratio of the "Big Seven" stocks in the US stock market has returned to the 83rd percentile (dropped to below 20% at the end of last year), with long positions now 6.6 times more than short positions. However, the ratio reached as high as 11.5 times in September 2021.
• The long/short ratio of US semiconductor stocks is even higher, reaching the 98th percentile, but only at 2.1 times, lower than the levels reached in June/July last year.