Tech stocks hit lowest valuations since ChatGPT launch, earnings climb 19%
In brief
- Tech sector forward P/E fell from 32x to 21x, matching pre-ChatGPT valuations from November 2022.
- Earnings estimates rose 19% over three months while valuations compressed 34%, widening valuation gaps.
- Semiconductor index trades at 20x forward earnings, last seen January 2023, after shedding one-third of peak premium.
- Analysts flag possible market overcorrection; crypto assets historically track tech sentiment during macro selloffs.
Valuation Collapse Amid Rising Earnings
The math is stark. Earnings estimates are rising by 19% while valuations compress by 34%, widening the gap between price and underlying business performance. Truist analyst Sam Grelck and other market observers have flagged the possibility that markets have overcorrected, selling off tech stocks beyond what fundamentals alone would justify.
The semiconductor sector mirrors this pattern. The PHLX Semiconductor Index trades at roughly 20x forward P/E, a level last seen in January 2023. For context, the SOX peaked at 30x forward earnings in mid-2024, meaning chip stocks have shed a third of their premium valuation in less than a year.
Implications for Crypto and Infrastructure
The tech selloff carries weight beyond equity markets. Bitcoin and major digital assets have historically shown strong correlation with tech stock sentiment during macro-driven selloffs. The overlap deepens when you consider the supply chain: companies manufacturing AI chips power both crypto mining operations and blockchain infrastructure.
Despite valuation compression, capital expenditures among hyperscalers and semiconductor manufacturers remain robust, and revenue growth continues to accelerate across the AI supply chain. The divergence between shrinking multiples and expanding revenues suggests underlying demand for AI infrastructure hasn't collapsed—only investor appetite for paying premium prices has shifted.
Dario Amodei, CEO of Anthropic, Sam Altman of OpenAI, and Elon Musk have each called for greater caution in advancing AI technology, a sentiment that may be influencing near-term sentiment. Whether the current valuations represent a genuine buying opportunity or a prelude to deeper repricing remains contested among analysts tracking the sector.
Frequently asked questions
Why did tech stock valuations fall so sharply?
The S&P Global tech sector's forward P/E compressed from 32x to 21x in under a year, erasing the AI-era premium built since ChatGPT's launch. The selloff reflects investor repricing of AI stocks despite rising underlying earnings, suggesting sentiment shift rather than fundamental deterioration.
Are earnings still growing in the tech sector?
Yes. Forward earnings estimates for the tech sector have climbed 19% over the past three months alone. This growth stands in stark contrast to the 34% compression in valuation multiples, suggesting the selloff may have outpaced actual business performance.
How does this affect crypto and blockchain?
Bitcoin and major digital assets historically track tech stock sentiment during macro-driven selloffs. Additionally, companies manufacturing AI chips power both crypto mining and blockchain infrastructure, so tech sector weakness can reduce capital expenditure for these operations.
