After a significant correction, valuations of US tech stocks have fallen to near four-year lows. According to Bloomberg data, the Nasdaq 100's forward price-to-earnings ratio has fallen to 19.0, down about 25% from its January high of 25.3 and about 22% below its five-year average of 24.2, placing it in the 1st percentile over the past five years and at its lowest level since October 2022. It's worth noting that the valuation decline is not entirely driven by deteriorating earnings expectations. Citadel Securities data shows that as of November 3, Nasdaq 100 forward earnings expectations rose 14% from the end of June, while the valuation multiple contracted by 19% over the same period. The valuation compression was more pronounced in the semiconductor, AI infrastructure, and storage sectors. This indicates that the market is lowering its pricing of future earnings, rather than simply anticipating a broad decline in corporate profits. However, forward price-to-earnings ratios rely on analyst earnings forecasts; if AI capital expenditure returns fall short of expectations and corporate earnings forecasts are further revised downwards, the attractiveness of current valuations may diminish.
