Tech Giants' Valuation Hits 7-Year Low, Despite Strong Fundamentals

Goldman Sachs' latest research reveals that the collective valuation of Apple Inc. and its fellow "tech seven giants" has plummeted to its lowest level in seven years. The tech seven giants include Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla.

David Kostin, a strategist at Goldman Sachs, noted that the forward price-to-earnings ratio for these seven tech giants is currently 28 times, which is 43% higher than the S&P 493 index's 20 times. This premium is at the 30th percentile of the past decade, indicating that the group's valuation multiples have reached their lowest point since 2018.

Despite concerns over AI spending, trade policy uncertainty, and antitrust lawsuits, Goldman Sachs' cross-sectional model suggests that the group is actually trading at a moderate discount relative to its fundamentals, based on earnings growth and balance sheet strength.

Kostin believes that in the short term, lighter positioning, cheaper valuations compared to the past two years, and renewed AI enthusiasm following the first-quarter earnings reports could drive the stock prices of the seven giants higher. However, risks remain two-sided: ongoing antitrust investigations by the EU and US against Alphabet, Apple, Microsoft, and Meta could cast a shadow, while competitive news, such as Apple's AI search ambitions causing Alphabet's stock to plummet 7% in a single day, highlights the group's internal fragility.

Despite these headwinds, the financial health and growth prospects of the seven giants remain robust. Analysts' earnings revisions for the group continue to outpace the broader market. Investors' focus will likely oscillate between the upside potential driven by AI and the regulatory clouds, creating a volatile but opportunistic environment for tech-heavy portfolios.

Analysts suggest that the reset of the seven giants' valuations to multi-year lows could present a buying opportunity for investors seeking to allocate to long-term growth leaders. However, regulatory and competitive risks remain a concern.