Tech valuations are back to pre-AI boom levels

https://www.apollo.com/wealth/the-daily-spark/tech-valuations-back-to-pre-ai-boom-levels

70•akyuu•1h ago

Comments

sfblah•1h ago

Must be using some strange definition for tech or valuations, because last I'd heard tech was some huge percentage of the S&P 500, and the index has dropped like 10% from its ATH.

jjmarr•1h ago

The definition is the first sentence of the post:

> The chart below compares the forward P/E ratios for the S&P 500 and the S&P 500 Information Technology sector.

> Tech valuations have compressed from 40x to 20x, and we are back at levels last seen before the AI boom began

Forward PE is the ratio of stock price to anticipated earnings.

If it's higher, then investors are predicting future growth in a company.

m101•1h ago

Except they are fundamentally different companies now. Now they have no free cash flow and they are extremely capital intensive industrial businesses.

Another note is that this is on forward earnings. What may have just happened is analyst expectations on forward earnings have caught up what markets prices earlier. Forward earnings generally lag pricing, this happens on the way up, and on the way down..

techkid•10m ago

The post defines it clearly: S&P 500 Information Technology sector. That excludes Meta, Alphabet, Amazon – which were moved to Communications and Consumer Discretionary. So the “tech” we’re looking at is more traditional software and hardware (Apple, Microsoft, Nvidia, etc.).

kaycebasques•1h ago

Aside: why are Alphabet and Meta bucketed into the Communications sector rather than the IT one? Meta kinda makes sense, but Alphabet much less so.

Are there any other notable IT companies that aren't actually part of the S&P500 IT sector?

Edit: Apparently this happened in 2018 and is known as the de-FAANGing of the IT sector. I.e. FAANG used to all be lumped in a single sector. ^SPX tried to redistribute to spread the companies across different sectors. AMZN is another notable company now outside of IT sector. https://en.wikipedia.org/wiki/Communication_services_sector_...

trueno•20m ago

good point, i think it'd be valuable to bring in more of these companies to this chart. with it narrowly scoped here it's perhaps (likely) not telling the full story. i would imagine theres plenty of ballooned valuations still because of AI

kaycebasques•13m ago

This also means that the pre-2018 index had a fundamentally different portfolio of companies. So comparing today to anything pre-2018 is apples-to-oranges

I recall that there's an "extended tech" ETF that does a pretty good job of actually capturing the whole IT universe. Pretty sure I'm thinking of IGM: https://www.ishares.com/us/products/239769/ishares-north-ame...

trueno•10m ago

> This also means that the pre-2018 index had a fundamentally different portfolio of companies

o true. this is a classic reporting/analytics yoy comparison type blunder, that actually makes graph in OP kind of meaningless. much more surgical comparison is needed here. now i cant help but chuckle at the total absolute that is the headline lol

> Pretty sure I'm thinking of IGM:

actually really cool thanks for putting this on my radar

tamimio•35m ago

AI isn’t a hype anymore, average non technical people hate AI and would rather not to interact with, and tech companies started to realize that AI won’t be the solution for all of their issues, but they still used it as a scapegoat to lower wages regardless. I even noticed now companies are back to ~2022 time in hiring either FT or consultation, from my experience.

So hopefully soon we will have dirt cheap prices for ram and other chips.

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