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Tech stocks lose premium versus S&P 500 expected earnings
Forward P/E for tech has narrowed from about 35% above the S&P 500 to roughly 10% today, while earnings estimates remain on track.
Tech stocks have become cheaper relative to the broader market, with investors paying a smaller premium for each dollar of expected earnings than they did a year ago, according to a Yahoo Finance Chart of the Day.
The comparison uses forward price-to-earnings ratios, where the tech growth-related premium has fallen from roughly 35% more for a dollar of expected tech earnings versus a dollar of S&P 500 earnings to about 10% today.
Yahoo Finance notes that after the financial crisis, tech and the broader market traded at similar forward P/E levels, and that the gap widened as the market shifted toward cloud computing in the 2010s and later as AI-driven spending boosted growth and margins.
The piece adds that even as much of the extra price has come out, corporate profits have continued to climb, and it points to rising earnings estimates and improving sales and margins as evidence the earnings backdrop is still holding up.
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