Investors are finally realizing there are more companies in the stock market to invest in than Big Tech.
Look no further than the valuations on the top five largest companies in the world. Quick analysis: Shares of the dominant tech companies have derated, meaning their valuation multiples have been adjusted downward, driven by a growing investor anxiety about the future returns from AI capital expenditures. The five largest stocks in the US now have price-to-earnings (P/E) ratios only marginally above those of the other 495 stocks in the S&P 500 (^GSPC), Goldman Sachs strategist Peter Oppenheimer pointed out in a new note (see the chart below).
The five largest companies by market cap according to Yahoo Finance AlphaSpace data are Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), and Amazon (AMZN). These companies have consistently had a premium since 2017. The hyperscaler valuation convergence has been matched by a sharp derating in the relative valuation of software stocks, Oppenheimer said.