Big tech stocks may soon have to prove that their recent rally is justified. After three months of surging share prices, investors are now watching closely to see if companies like Nvidia (NVDA), Meta (META), Alphabet (GOOGL), and Microsoft (MSFT) can deliver strong earnings and solid guidance. Lauren Goodwin, chief market strategist at New York Life Investments, told Yahoo Finance that while these companies may continue to post strong results, their ability to keep pushing valuations even higher will likely be challenged in the coming quarters.
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Indeed, many of these tech giants have seen massive gains recently, with Nvidia and Meta up 52% and 41%, respectively, over the past three months. As a result, the average forward price-to-earnings (P/E) ratio for these four companies now stands at 30, which is far above the broader S&P 500’s (SPY) ratio of 22. This valuation surge is most extreme with Nvidia, as its market cap nearly hit $4.2 trillion due to optimism that its AI chips could soon flow back into China. This excitement has led some analysts, like Wedbush’s Dan Ives, to declare that the AI revolution is entering a new growth phase.
However, not everyone is convinced that tech stocks can keep climbing on hype alone. In fact, UBS’ Ulrike Hoffmann-Burchardi warned that recent gains have mostly come from increasing valuation multiples rather than actual earnings growth. Therefore, she made it clear that future earnings-per-share upgrades are needed in order to justify higher stock prices. For this reason, along with lingering geopolitical risks, she recommends a diversified approach instead of betting heavily on a single company or sector.
Which Tech Stock Is the Better Buy?
Turning to Wall Street, out of the four tech stocks mentioned above, analysts think that GOOGL stock has the most room to run. In fact, GOOGL’s average price target of $202.56 per share implies more than 10% upside potential. On the other hand, analysts expect the least from META stock, as its average price target of $737.86 equates to a gain of 4.9%.
