Big Tech Stocks Are Still Expensive. Why That's Important For the Market
Big Tech stocks are still expensive, despite all the market's down times this year. And that's key for the $S&P 500 index(.SPX.US)$.
Now, the giants -- $Apple(AAPL.US)$ and $Alphabet-A(GOOGL.US)$ are two examples -- haven't walked away untouched. They've gotten caught in the selloff just like the rest of the S&P 500, which is down about 16% from its early January all-time high.
The market just hasn't been able to shake off two big worries -- the Russia-Ukraine war and a recession triggered by the Federal Reserve, desperate to bring down inflation with higher interest rates.
Still, comparatively speaking, Big Tech is expensive. Those names are simply more richly valued than the tried-and-trues of other industries -- $Ford Motor(F.US)$, for example, or $Pfizer(PFE.US)$.
The key metric is the earnings multiple. Apple and Alphabet -- along with $Microsoft(MSFT.US)$, $Amazon(AMZN.US)$, $Meta Platforms(META.US)$, $Tesla(TSLA.US)$, and $NVIDIA(NVDA.US)$ -- trade at an average forward earnings multiple of about 38 times. And that's just below the sub-17 times aggregate multiple for the S&P 500.
Big Tech has been able to pull a rabbit out the hat because of its bright future: relatively fast profit growth.
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