Positives have started to emerge in beaten-up tech stocks that could entice investors to jump back in despite a host of concerns.
Quick insight: Tech stocks have corrected about 11% since their early June peak, according to Truist chief investment officer Keith Lerner. This marks the fifth double-digit percentage pullback of the current bull market. However, this has been the shallowest of the previous four corrections.
“Markets often behave like a rubber band. When leadership groups become overly extended, periods of consolidation help bring prices, expectations, and sentiment back into balance. That appears to be happening now,” Lerner said.
The drawdown in tech may have investors forgetting about a few realities:
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The tech sector’s forward P/E ratio has declined to 22 times, down from an October peak of 32 times, representing a valuation reset of about 30%, Lerner said.
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The sector’s valuation (forward P/E) premium versus the S&P 500 (^GSPC) has narrowed to 13%, down materially from the nearly 50% peak seen earlier in the bull market.
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Tech’s earnings estimates continue to push to new highs, significantly outpacing the broader market.
The backstory: Investors have grown increasingly concerned that the sector’s massive AI-driven rally has left valuations stretched, prompting profit-taking after a historic run.
At the same time, the biggest technology companies—including Microsoft (MSFT), Alphabet (GOOG, GOOGL), Meta (META), Amazon (AMZN), and Oracle (ORCL) — have continued to raise capital spending plans to unprecedented levels. That has fueled the debate over whether hundreds of billions of dollars in AI infrastructure investments will ultimately generate sufficient returns.
Rising Treasury yields and expectations that interest rates could remain higher for longer have also weighed on high-growth technology stock, whose valuations are particularly sensitive to borrowing costs.
“If we see more of that [capex spending increases] this week from these [tech] names, that’s going to create some more headwinds as we move into the last month of the summer,” Miller Tabak strategist Matt Maley said on Yahoo Finance’s Opening Bid.
Bottom line: The moment may have arrived when there’s some unbeatable value in the tech stock patch.
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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