LONDON — A substantial disconnect in the U.S. tech sector is top of mind for investors in 2022, according to Goldman SachsDavid Kostin is the Chief U.S. Equity Strategy Strategist.

The first week in 2012 saw a sharp drop in U.S. technology, taking it to the Nasdaq 100On Monday, they briefly entered correction territory before rallying and ending a 4-day losing streak. While they were waiting, S&P 500It was the worst week of economic activity since Lehman Brothers’ collapse.

Investor apathy has been driven by higher interest rates, and the Federal Reserve’s recent hawkish comments. Markets now prepare for possible interest rate rises and tightening at the central banks’ balance sheet.

Analysts therefore generally expect 2022 to be a tough year for high growthThese tech companies have been able to benefit from the ultra-loose Monetary Policy that was required by the Covid-19 Pandemic, as this stimulus winds.

The U.S. equity markets are divided into two groups: companies that expect high revenue growth, but have low margins or even negative margins. On the one hand, high-growth companies with very significant positive margins. The gap has widened dramatically in the last 12 months,” Kostin stated to CNBC Monday before the Global Strategy conference of Wall Street’s giant.

Kostin pointed out that low-profit-margin, high-growth stocks traded at 16x enterprise value to sales in February 2021. Investors can use the enterprise value-to–sales ratio to determine the value of a company by taking into consideration its sales, equity, and debt.

Kostin reported that the stocks trade now at about seven times the price of EV/sales.

Kostin explained that much of the change occurred within the past month. “This is because, as rates rise, the valuation or future cash flow value are less valuable in a higher rate environment.”

That’s an important issue and the difference between them, I would say is the biggest subject of discussion with clients. There has been a significant devaluation of fast-growing revenue companies with low margins. The argument here is that more can be done to adjust that figure.

According to him, the difference between these stocks is still quite close and it will probably widen. Kostin suggested that this might be seen in companies experiencing rapid growth with high profit margins, as well as those who have lower or no margins.

Kostin explained that the issue is about how the rates and equity interact. He also spoke to speed and size of changes. Profit margins are a crucial topic for fund managers and this is especially important given current rates.