Alphabet, Meta, Nvidia, and Microsoft experienced a huge surge in their stocks thanks to the artificial intelligence boom.
However, analysts at Wall Street are already approaching with caution: current prices are raising doubts about their sustainability.
Why is the rise in stocks a concern?
In the past three months, these four companies have risen by an average of 35%. Meta climbed 41% and Nvidia an impressive 52%, becoming the market favorites.
The enthusiasm has resulted in valuations well above average. The forward price-to-earnings (PE) ratio for these companies is around 30 times, compared to an average of 22 in the S&P 500 index.
What is the price-to-earnings ratio?
It is a metric that compares a stock's price to its projected earnings. When the number is very high, it is interpreted as the stock potentially being overvalued.
