According to Goldman Sachs Managing Director Greg Tuorto, market conditions are looking promising for small-cap stocks.
During a recent interview, Tuorto mentioned that small caps have faced challenges in the past few years, especially since the US Federal Reserve began raising rates. However, they have yet to see the expected boost since the Fed started cutting rates.
“We are witnessing a positive earnings cycle in small caps, which we believe will be more robust than the large-cap earnings cycle. Additionally, small caps are trading at a discount of about 25-30% compared to large caps. The IPO market presents opportunities, and the increase in M&A activity is a favorable trend for the small-cap market,”
Regarding the small-cap sector, Tuorto suggests that investing in the “picks and shovels” side of AI can lead to long-term gains.
“Semiconductors, specifically semiconductor cap equipment, have emerged as a leading sector in the market. Additionally, optical connectivity for data centers is gaining traction. There are various investment opportunities in this space, even if software lags behind,”
The Goldman Sachs executive also recommends exploring opportunities in the biotech and defense sectors.
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