The S&P 500's tech sector now trades at a forward price-to-earnings ratio of roughly 21 times, down from 32 times last October — the cheapest level since OpenAI launched ChatGPT in November 2022. Earnings estimates keep climbing even as the multiple compresses, and elevated Treasury yields are doing much of the work.
Valuations reset to 2022 levels
The S&P 500's tech sector forward P/E ratio has declined from 32 times last October to approximately 21 times, Truist chief investment officer Keith Lerner said. At these levels, tech valuations sit roughly where they stood when OpenAI launched ChatGPT in November 2022.
Chipmakers show a similar pattern. The PHLX Semiconductor Index trades at roughly 20 times forward earnings, a level last seen in January 2023, before the AI infrastructure buildout accelerated.
Earnings keep climbing
But the multiple compression is not being driven by weaker profit expectations. Forward earnings growth for tech remains the strongest in the market, with estimates rising approximately 20% over just the past three months, Lerner said.
Tech's relative valuation premium has fallen to approximately 9%, near the lowest level of the past decade, Lerner said, adding that the sector still represents a relative opportunity for investors.
Yields and spending weigh on the multiple
Stubborn inflation and elevated Treasury yields, with the 10-year yield hovering near 5%, are raising discount rates and eroding the present value of future earnings. At the same time, investors are demanding proof of return as hyperscalers such as Meta and Amazon pour an estimated $800 billion into AI capital expenditures this year.
Public caution from AI leaders has added to the shift in mood. Anthropic CEO Dario Amodei, OpenAI's Sam Altman and Elon Musk have each called for greater caution in advancing AI technology, according to Crypto Briefing.
According to Yahoo Finance: "The weight of the evidence supports staying aligned with the primary market trend," Lerner said, adding that underweight investors should consider adding equity exposure. A deeper pullback, he said, would potentially offer a chance to turn more aggressive.
Sources: Yahoo Finance, Crypto Briefing
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