Goldman Sachs Managing Director Greg Tuorto thinks market conditions look healthy for small-cap stocks.
In a new interview, Tuorto notes that small caps have had a rough 3-4 years since the US Federal Reserve started raising rates, and they haven’t yet witnessed the expected tailwind since the Fed started to cut.
“We’re starting to see a nice earnings cycle in small caps. We think it’ll be a lot more powerful than the large-cap earnings cycle. We also think they’re a lot cheaper. About 25 – 30 percent cheaper than large-caps. Plus, you have the optionality in the IPO market, which should help. And M&A is starting to pick up, which is also a really nice, you know, tailwind for the small-cap market.”
In terms of the small-cap space, Tuorto argues that the “picks and shovels” side of AI is a smart way to secure gains on a longer timeline.
“I think that you look at semiconductors. Semiconductor cap equipment, which was nowhere two years ago and now is a leading sector in the market. And some of this optical connectivity that needs to connect these data centers together. You know, there are a lot of opportunities here. A lot of ways to play it. A lot of different flavors of things to invest in. So, I do think that this can be good, even if software doesn’t join the party as it hasn’t for the past, say, three, six months.”
The Goldman Sachs executive also says investors should look at the biotech and defense sectors.
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