La Derecha Diario Alphabet, Meta, and Nvidia under scrutiny for valuations that worry Wall Street
Shares of major tech companies are rising sharply due to AI, but they are already raising concerns about their valuations
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.
In this case, Meta, Nvidia, and Microsoft show forward PE ratios above their averages for the past three years. Alphabet is the only one that remains just below its historical average.
Beyond the "Magnificent Seven"
The phenomenon is not limited to the most popular tech companies. Broadcom rose 57% in the same period and reached its highest valuation in five years. Uber also jumped 25%.
The trend shows that investor optimism is spreading to much of the tech sector, especially to companies linked to AI.
What do analysts say?
According to Ulrike Hoffmann-Burchardi, global head of equities at UBS Financial Services, the rally was driven more by multiple expansion than by real improvements in revenue.
"We prefer to see increases supported by growth in earnings per share (EPS), not just in valuation," she explained.
More posts: