Think tech is overvalued? Suddenly, technology stocks are almost as cheap as one of the most boring, slowest growing parts of the stock market. Data from FactSet shows the XLK ETF , which tracks the S & P 500 tech sector, trades at around 23 times forward earnings, while the XLP consumer staples ETF has a multiple of around 21. This valuation parity is unusual as tech companies are seen as growth names, while investors tend to favor staples in times of market uncertainty for their lower-risk, higher yielding profiles. Wall Street has grown fearful in recent months of the artificial intelligence disruption in software stocks, leading investors to rotate into more stable, reliable businesses. A look at some individual stocks also reflects this bizarre trend. Take AI poster child Nvidia as an example. The chipmaker trades at 23 times forward earnings, according to FactSet. Walmart , meanwhile, sells at a multiple of more than 42 times the next year’s estimated profits. What’s more, Nvidia’s forward PE will go lower as analysts hike their earnings estimates for the company after its latest quarterly report . Nvidia posted earnings, revenue and guidance that beat analyst expectations . However, the stock has barely budged following the blockbuster report. Put another way, the “E” in the PE equation will rise, while the “P” stays about the same — driving down the multiple. Other factors could make Nvidia even cheaper, according to UBS Global Wealth Management. “Nvidia shares have de-rated materially over the past six months as investors grew increasingly concerned with so- called circular financing, an uncertain return on investment (RoI) on AI spending, and hyperscaler spending that is approaching 100% of operating cash flow. We do not anticipate these concerns will dissipate in the near term, and we believe the valuation may continue to trend lower from the current 24x P/E” for the next 12 months, UBS strategists said.
Bizarro world: Tech is now almost as cheap as consumer staples stocks
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