Key takeaways
- Tech stocks trade below broader market valuations for first time since 2017
- Technology's forward earnings multiple plunges from above 32 to 17.1
- AI earnings growth continues despite mounting concerns over infrastructure spending
Technology stocks are trading at a discount to the broader S&P 500 for the first time since 2017, marking a remarkable reversal for a sector that dominated Wall Street's artificial intelligence rally.
The S&P 500 information technology sector's forward price-to-earnings ratio fell to 17.1 as of November 5, compared with 17.9 for the broader index, according to LSEG Datastream figures. The technology multiple exceeded 32 in October 2025, meaning investors now pay roughly half as much for each dollar of expected earnings.
The reversal follows a prolonged Nasdaq correction as investors question whether enormous AI infrastructure commitments can deliver sustainable profits.
Technology Valuations Fall as AI Stocks Lose Their Premium
The valuation collapse has been particularly severe among semiconductor companies, which previously commanded substantial premiums because of expectations for rapid AI-related earnings growth.
A November 4 analysis by Citadel Securities found that S&P 500 semiconductor stocks traded at 13.8 times forward earnings, approximately 45% below their January peak.
The sector also traded at a 25% discount to the S&P 500, compared with a 66% premium at the height of the AI trade in June 2024.
Despite falling valuations, semiconductor earnings estimates increased roughly 30% between June and early November.
That contradiction extends an earlier 43% valuation contraction across chip companies, even as AMD, Arista and other suppliers reported strong demand.
AI Spending Concerns Overshadow Strong Corporate Earnings
The selloff reflects growing uncertainty about the financial returns on hundreds of billions of dollars committed to AI infrastructure.
Investors are increasingly questioning whether cloud providers and specialized computing companies can generate enough revenue to justify expensive chips, data centers and financing arrangements.
These concerns have become more significant as the AI buildout increasingly relies on borrowed capital.
Meanwhile, Goldman Sachs expects AI infrastructure investment to continue expanding, even as higher borrowing costs threaten individual projects.
Can Cheaper Tech Stocks Trigger Another Market Rally?
Lower valuations could make technology shares more attractive if corporate earnings remain resilient and financing conditions stabilize.
However, a lower forward P/E does not automatically indicate undervaluation. Earnings forecasts could decline if AI spending slows, potentially making current valuations less appealing.
The technology sector still represents more than 35% of the S&P 500, leaving the broader market unusually exposed to changes in AI investor sentiment.
Investors are now watching the upcoming US inflation report, alongside CoreWeave's November 10 results and Nvidia's November 17 earnings.
