The Rocky Start to Q2 Is Bringing Undervalued Sectors Back Into Focus
The market’s favorite whipping boys might be ready for redemption. Historically one of the strongest months, April now looks far less supportive as inflation stays sticky, the Fed’s path remains unclear, and confidence in corporate earnings slips. With the usual rebound nowhere in sight, contrarian opportunities are beginning to emerge.
Growth without conviction: Big Tech’s biggest names have been sliding even when results beat expectations, showing that strong numbers alone aren’t easing investor concerns. Gene Munster says Microsoft needs a clear narrative reset, arguing Copilot lacks real enterprise traction and pointing to deeper gaps in its AI positioning. At the same time, hyperscalers are pouring roughly $650B into AI infrastructure in 2026, a scale of spending that continues to unsettle markets as investors wait for meaningful returns.
- Gartner’s John-David Lovelock compares today’s AI buildout to the late-2000s cloud boom, suggesting only “two or three players” will ultimately dominate.
- Futurum’s Daniel Newman warned markets will “continue to be a little uneasy,” with “some volatility” and resistance before the next leg higher.
Opportunity in Uncertainty
Value stocks had started to look like a safe haven, outperforming growth before the trade began to unravel. The Russell 1000 Value Index has since fallen following the Iran conflict alongside broader weakness in banks and other economically sensitive sectors. Despite the pullback, value still trades at a discount — around 16x forward earnings versus 24x for growth — leaving investors caught between cheaper valuations and rising macro risks.
- Morningstar sees value emerging in beaten-down tech names like MicrosoftMSFT and AlphabetGOOGL after recent AI-driven pullbacks.
- AI infrastructure demand and cloud expansion are supporting growth interest in AmazonAMZN, NebiusNBIS, and memory-linked players like SanDiskSNDK.
Leaning into fear: While earnings doubts are weighing on the near term, the recent selloff has created the kind of valuation reset that often sets up stronger forward returns. Technology and communication services names are now trading at more attractive levels after sharp pullbacks, especially where sentiment has turned overly negative. As Terry Sandven of US Bank put it, “The wall of worry is under full construction” — and that’s the kind of setup that tends to reward investors willing to lean in when others pull back.