Tech remains under heavy pressure as an AI and semiconductor unwind has broadened into a general risk-off move. Investors are reassessing the policy environment for data centers and AI development, while also questioning the earnings outlook for the biggest beneficiaries of the buildout.
We are now seeing something of a buyers’ strike in tech.
For context, the current tech pullback is 16%. Since this bull market began, tech has experienced five double-digit declines ranging from 12% to 27%, with an average decline of 17%. From that perspective, this pullback, like the others, is sharp and uncomfortable, but not abnormal.
At the same time, the rubber band is getting stretched. Tech has underperformed the S&P 500 by 10.7% over the past month, the most extreme one-month underperformance since May 2002.
Moreover, tech’s forward price-to-earnings (P/E) has fallen to roughly 17.4x, below the S&P 500’s 18.0x for the first time since 2017.
At its October 2025 peak, the sector traded at a 32.0x P/E. That multiple has now declined by 45%, the sharpest peak-to-trough valuation decline we have seen this cycle.
The risk, of course, is that the earnings outlook needs to be marked down more than we anticipate and valuations are not as cheap as they appear at face value.
Moreover, the rubber band could get stretched further to the downside. Selling often begets selling. And there is uncertainty. There is always uncertainty.
Still, at least some of the concerns are increasingly reflected in prices.
The open question is when fear of further downside shifts to fear of missing out on the upside, and what the catalyst will be. That is often something one knows only in hindsight.
Still, at a 32.0x P/E last year, the market had baked in a lot of good news. Arguably, at almost half that level, the market is already pricing in a lot of bad news.
We are moving toward a situation where a little good news could go a long way.
Time frame matters. For longer-term investors, however, our work suggests the risk/reward is improving.
As always, we will continue to follow the weight of the evidence, keep an open mind, and update our views as conditions evolve.
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