tech valuations below S&P 500 — For the first time in nearly a decade, the technology sector is trading at a lower earnings multiple than the broad U.S. market, a shift that has drawn attention from strategists and skeptics alike. The development, which puts tech valuations below S&P 500 levels, follows a punishing stretch for chip and artificial intelligence stocks and marks a sharp reversal from the sector’s premium a year ago.
A valuation inversion after years of tech dominance
Technology companies in the S&P 500 recently changed hands at roughly 17 times projected earnings, while the benchmark index as a whole stood at about 18 times, according to Keith Lerner, chief investment officer at Truist Wealth. That was the first time since 2017 that the tech sector’s multiple sat beneath the broader market’s. At the sector’s October 2025 peak, the same group commanded 32 times forward earnings.
Lerner’s read is that expectations have swung hard in the other direction. A year ago, the lofty multiple implied investors were anticipating a great deal of favorable news, he noted. At close to half that level, the market now appears to be discounting a significant amount of negative news.
Chips bear the brunt as the AI trade cools
The headline indexes absorbed the damage while the average stock held up far better. The equal-weight S&P 500, a proxy for the typical company, closed at a record on Wednesday and finished the week only about 1% from where it began. The S&P 500 and Nasdaq each dropped roughly 3%, their fourth consecutive weekly decline, before a Friday rebound in semiconductor shares.
The PHLX Semiconductor Index fell for a fifth straight week, losing nearly 30% over that span. Micron and Sandisk each shed more than 20% in the week alone. Some of the largest technology names moved in the opposite direction, with Amazon, Microsoft and Alphabet finishing higher.
Lerner described the environment as something resembling a buyers’ strike in tech. He pointed out that chipmakers are typically the first to register any deceleration in data-center construction, a risk that loomed over the midterm elections. A slower build-out, however, could reduce the cash drain on the biggest AI spenders. In Lerner’s view, such a pause might even extend the cycle by improving cash flow.
History points to gains, with notable exceptions
Truist’s positioning advice is to remain overweight U.S. large caps while adding small caps as a partial hedge against sharp rotations away from megacap technology. The firm also observes that stocks have climbed in the year following every midterm election since 1946.
Yahoo Finance calculations offer a similar message of patience. Since 1990, the S&P 500 has endured 33 streaks of four or more losing weeks. Three months after such streaks, the index was higher about 80% of the time, with a median gain of 6%. That compares with a typical three-month return of roughly 3% after any given week. The exceptions occurred during the dot-com bust and the 2008 financial crisis, when the S&P 500 continued to fall for another year.
Not everyone sees a bargain
Michael Martin, founder of TraderMindset.com who runs a commodity futures strategy with Victor “Trader Vic” Sperandeo, is not treating the pullback as an entry point. He told Yahoo Finance that now is a time to harvest cash rather than buy, arguing that everything is in a downtrend. Lower valuations do not impress him either, since a lower price also means a lower market capitalization rather than better value.
Martin said he would only consider a small position using call options if the S&P 500 holds its 200-day moving average, a widely followed trend line. Lerner, by contrast, sees the setup beginning to shift in a more constructive direction, suggesting that a small amount of good news could have an outsized effect from here.
