Do you think technology is overvalued? Suddenly, technology stocks are almost as cheap as the most boring, slow-growing part of the stock market. The XLK ETF, which tracks the S&P 500 tech sector, trades at about 23 times forward earnings, while the XLP Consumer Staples ETF trades at about 21 times forward earnings, according to FactSet data. While this valuation parity is unusual because technology companies are considered growth stocks, investors tend to favor consumer staples for their lower-risk, higher-yield profiles during times of market uncertainty. Wall Street has grown increasingly concerned about the disruption of artificial intelligence in software stocks in recent months, with investors shifting to more stable and reliable businesses. A look at some individual stocks also reflects this strange trend. Take Nvidia, a leading company in AI, as an example. According to FactSet, the company trades at a forward price-to-earnings ratio of 23 times. Meanwhile, Walmart’s sales are more than 42 times next year’s expected profits. Additionally, NVIDIA’s future P/E ratio will decline as analysts raised their earnings estimates for the company following its latest quarterly report. Nvidia announced earnings, earnings and guidance that beat analysts’ expectations. However, the stock price has barely moved in the wake of the blockbuster news. Stated another way, the ‘E’ in the PE equation goes up, but the ‘P’ stays about the same and the multiplier goes down. Other factors could push NVIDIA’s price even lower, according to UBS Global Wealth Management. UBS strategists wrote, “Deere stock has been significantly downgraded over the past six months. We do not expect these concerns to dissipate in the near term, and we believe valuations may continue to trend downward from the current P/E ratio of 24 times over the next 12 months.”
