© Reuters. The technical valuation is the highest since the dot-com bubble – Analysts
The increase in the valuation of technology stocks pushed them up nearly 16% in the first half of the year amid growing optimism surrounding next-generation AI technology.
Tech stocks rose 38% year-over-year in the first half of the year, the best half-year performance in more than 20 years, according to Bernstein analysts.
“The technology is now trading at a premium of 54% in the market, its highest level in 45 years outside of the dot-com bubble, and well above its historical average premium of 26%,” the analysts said in a note to clients.
As a result, they struggle to recommend Bernstein’s clients to take a plus position in tech for the coming months. Instead, they say, “stock picking is increasingly important, especially since the top five tech companies account for nearly 56% of all tech capital (the top 2 represents 33%), three of which have very high relative valuations (95%). +) vs. history.”
“Our reluctance to recommend overweight stems from the sector’s mix of historically high valuations but a projected five-year average relative growth outlook. However, we believe it is difficult to be underweight, the analysts added, citing many factors including That strong momentum of artificial intelligence.
Similarly, equity experts at JPMorgan say stocks aren’t cheap, even without technology/AI.
“In terms of a forward price/earnings multiple of 12 million, the S&P500 is currently at 19.4x, the tech is at 27.3x and the non-technology/AI portion, the remaining 65% of the index, is at 17.4x. This is in comparison With 15.3x the historical median, 10% + premium.At the low of last October, when the recession was the ground state for most, the S&P500 was trading at 15.3x price-to-forward, with Tech at 18.1x and the SPX ex Tech at 14.5x,” they wrote in a JPMorgan note sent to customers today.
Overall, JPMorgan analysts see a possible decline in the shares in the second half of 2023.
“FOMO is in full swing, there is complacency being building in stocks with lows. All of this suggests that if momentum weakens in 2 hours, relative to current expectations of no soft landing, stocks are unlikely to ignore it, or consider Through it, as it’s not priced in for disappointment anymore, even if there is frustration. To take Tech/AI/FAANG combos entirely out of the equation.”