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The S&P 500 is trading at valuations we haven't seen since some of the biggest stock market bubbles in history.
The S&P 500 is currently trading at roughly 18x forward earnings, while the equal-weighted S&P 500 is trading closer to 16x. For those unfamiliar, the traditional S&P 500 is weighted by market capitalization, meaning companies like NVIDIA, Microsoft, Apple, and Alphabet have a much greater influence on the index. The equal weighted S&P 500, on the other hand, gives all 500 companies approximately the same weighting. And that difference is becoming increasingly important. Investors are willing to pay significantly higher valuations for the largest technology companies, particularly those benefiting from AI, cloud computing, and other major growth trends.
But what's interesting is that the gap between the two indices has widened considerably compared to much of the last two decades. This tells us that a significant portion of the market's valuation premium is concentrated among the largest companies rather than being distributed equally across the broader market. I think this is particularly interesting because whenever people talk about the stock market being overvalued, they're usually looking at the traditional S&P 500, which is heavily influenced by a relatively small group of companies.
That doesn't necessarily mean the remaining 490 or so stocks are cheap, but it does suggest that valuations across the market are far from uniform.
And historically, periods of elevated valuations have made markets more sensitive to earnings disappointments, rising interest rates, and changes in investor expectations. Personally, I still believe some of the largest technology companies can deliver strong earnings growth over the next several years, but I also think investors are going to become increasingly selective about which companies actually deserve these premiums. This is exactly why I’m getting more selective and if you want to see which AI and tech names I’m investing in at these valuations, check out my full Milk Road Pro portfolio below.
link.milkroad.com/d8cj6v
The S&P 500 is currently trading at roughly 18x forward earnings, while the equal-weighted S&P 500 is trading closer to 16x. For those unfamiliar, the traditional S&P 500 is weighted by market capitalization, meaning companies like NVIDIA, Microsoft, Apple, and Alphabet have a much greater influence on the index. The equal weighted S&P 500, on the other hand, gives all 500 companies approximately the same weighting. And that difference is becoming increasingly important. Investors are willing to pay significantly higher valuations for the largest technology companies, particularly those benefiting from AI, cloud computing, and other major growth trends.
But what's interesting is that the gap between the two indices has widened considerably compared to much of the last two decades. This tells us that a significant portion of the market's valuation premium is concentrated among the largest companies rather than being distributed equally across the broader market. I think this is particularly interesting because whenever people talk about the stock market being overvalued, they're usually looking at the traditional S&P 500, which is heavily influenced by a relatively small group of companies.
That doesn't necessarily mean the remaining 490 or so stocks are cheap, but it does suggest that valuations across the market are far from uniform.
And historically, periods of elevated valuations have made markets more sensitive to earnings disappointments, rising interest rates, and changes in investor expectations. Personally, I still believe some of the largest technology companies can deliver strong earnings growth over the next several years, but I also think investors are going to become increasingly selective about which companies actually deserve these premiums. This is exactly why I’m getting more selective and if you want to see which AI and tech names I’m investing in at these valuations, check out my full Milk Road Pro portfolio below.
link.milkroad.com/d8cj6v
Wall Street's favorite AI stocks might not be nearly as expensive as investors think.
According to Goldman Sachs, the S&P 500's Information Technology sector is trading at just 17x forward earnings, placing its valuation in the 31st percentile of the past 10 years and the 40th percentile of the past 30 years. In other words, technology stocks are actually trading at relatively inexpensive valuations compared to their own historical averages. What's even more interesting is that the sector is sitting near the 28th percentile relative to the broader S&P 500 over the past decade, suggesting technology is unusually cheap compared to the rest of the market.
Meanwhile, consumer staples, industrials, and healthcare are trading at much higher historical valuation percentiles, even though these sectors generally aren't expected to experience the same earnings growth as some of the largest technology companies. I think this is particularly interesting given the recent selloff across AI and semiconductor stocks. Investors have become increasingly concerned about elevated valuations, the sustainability of AI spending, and whether hyperscalers will generate sufficient returns on their massive investments. But the data suggests that at least some of the valuation premium investors have been worried about may have already disappeared.
Now, this doesn't necessarily mean technology stocks have bottomed or that they're automatically cheap. Earnings estimates could still come down, and individual AI companies may remain expensive. But if earnings continue growing while stock prices remain under pressure, valuations could become increasingly attractive. The bigger question is whether we're witnessing the beginning of a fundamental deterioration in the AI investment cycle or simply a major repricing of some of the market's fastest growing companies. This looks like another buy the dip opportunity to me. If you want to see which AI and tech names I’m investing in at these valuations, check out my full portfolio below.
link.milkroad.com/tx5qipView quoted post on X
