The Great Rotation Has Crushed Growth Stocks. History Says That’s Usually When You Should Be Buying Them.
April 18, 20263 Mins read79
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The “Great Rotation” has seen defensive sectors like consumer staples outperform technology in the first quarter. That sent the shares of top tech stocks down, but history suggests these rotations are often the best times to buy quality growth companies.
Over the last decade, the iShares S&P 500 Growth ETF has endured four drawdowns of at least 12% from its previous high, including two drops of more than 24% in 2020 and 2022. In the face of that volatility, the Growth ETF has nearly doubled the return of the iShares S&P 500 Value ETF over the past 10 years. History is clear that if you have at least 10 years until retirement, growth stocks are your friend.
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Even with the S&P 500 already back to all-time highs, there are still attractive opportunities available. Leading tech companies like Nvidia(NASDAQ: NVDA), Microsoft(NASDAQ: MSFT), and Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) are seeing strong growth and offer reasonable valuations, setting the potential for excellent returns.
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Nvidia sits at the center of the artificial intelligence (AI) investment cycle. Based on updated numbers provided at GTC 2026, management estimates cumulative purchase orders for its Blackwell and upcoming Rubin chips will exceed $1 trillion. Analysts expect Nvidia’s revenue to increase 71% this year, reaching $369 billion.
That growth and scale could make Nvidia one of the most profitable companies in the world. It posted a 55% profit margin over the last year, bringing its trailing-12-month net income to $120 billion. It has the resources to fund continued investment in computing systems for AI data centers, robotics, and self-driving cars.
Nvidia’s chips are increasingly fundamental to the $110-trillion-plus global economy, in which every sector will use AI. Even at a market cap approaching $5 trillion at the time of writing, it could be worth far more in another decade. The stock trades at about 18 times next year’s earnings, with analysts forecasting 38% annual earnings growth over the next few years.
Microsoft has fallen around 30% from its recent highs, yet it benefits from a large base of recurring cloud revenue and is seeing strong demand for AI cloud services.
Last quarter, Microsoft Cloud revenue, including Microsoft 365, Azure, and other cloud services, grew 26% year over year. One of the most important signals from the earnings report was that Microsoft 365 Copilot reached 15 million paid seats (licensed users), accelerating over the previous quarter, showing the company can sell more AI services across its huge installed base.
“We are in the beginning phases of AI diffusion and its broad GDP impact,” CEO Satya Nadella said. That’s supported by continued adoption of Copilot and Azure. Azure posted 39% year-over-year revenue growth, driven by enterprise demand for building, training, and deploying AI agents and software.
Microsoft has led productivity software for decades, and it looks poised to extend that edge through its AI infrastructure, including a global data center footprint and custom AI chips. At 22 times next year’s earnings estimate, the stock looks attractive after the recent dip.
Alphabet’s Google is positioned to compound shareholder returns by using AI to make its services more useful for billions of people. It has integrated its Gemini model across products, including Google Search — its largest revenue driver — with strong early results.
Alphabet is delivering double-digit growth in advertising and Google Cloud. Its ability to convert those massive revenue streams into free cash flow — $73 billion over the last year — makes it a high-quality growth stock to buy and hold.
The top tech heavyweights, including Microsoft and Google, plan to spend at least $600 billion this year, according to The Motley Fool’s research, with Google roughly doubling capital spending to about $180 billion.
This spending is not a risk; it’s a competitive advantage. The companies that can afford more chips and data centers to deliver the best AI services will ultimately attract more users, ship better products, and generate more revenue.
Alphabet stock trades at a reasonable 25 times next year’s earnings estimate. These tech giants could deliver more growth over the next 20 years than what’s priced in right now.
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John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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