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U.S. tech stocks are back in fashion after another impressive earnings season, with Morningstar analysis showing the sector is offering investors the best value in years.
Market conversations in 2024 and 2025 frequently mentioned concerns that the valuations of the Magnificent Seven would continue to rise, largely due to the hype around artificial intelligence, and that a bubble would emerge at the top of the U.S. stock market.
The peak was in October 2025, when the S&P 500 information technology sector’s forward P/E ratio exceeded 30 times, according to FactSet. However, as a result of a series of strong financial results since then, the denominator of the “E” in the price-to-earnings ratio formula has increased, which has lowered the valuation multiple, allowing high-tech stocks to “grow” in stock price.
The AI theme is currently trading at its largest discount since 2019, according to Morningstar research.
Chief equity strategist Michael Field said using the researchers’ proprietary price-to-fair value metric provides a “great entry point” into the sector.
“AI is not a bubble that’s going to burst anytime soon. The underlying fundamentals are strong,” Field said.
“Demand for semiconductors has exceeded expectations, and key drivers such as data centers and infrastructure remain intact. The AI story has a long way to go, and investors should make the most of these opportunities while they still exist.”
US tech stocks could offer their lowest valuations in years
Morningstar’s research said U.S. stock market volatility in early 2026 will lead to a decline in AI stocks from their record high valuations, resulting in “more attractive pricing” for the most affected stocks.
According to Saxo Bank, capital expenditures for 2026 were raised as one of the “Magnifice 7” in the April results update, and the total expenditure is currently about $725 billion, compared to the previous forecast of about $670 billion.
Everything at once, everywhere
But some analysts are skeptical that hyperscalers will be able to sustain their current impressive capital expenditures into the future.
Dan Kemp, founder of investment consultancy Portfolio Thinking, told CNBC: “I couldn’t believe that companies could grow this fast and make such profits, but now I can’t believe they won’t.”
He said investors would need “strong conviction” to believe that a company could continue to generate supernormal profits without being exposed to competition, as is usually the case in capital markets.
Central to the theory behind superior revenue growth is the idea that artificial intelligence is a “long-term” trend and is therefore protected from economic peaks and troughs.
Sophie Huynh, portfolio manager at BNP Paribas Asset Management, says while this may be true, physical constraints can be a bigger problem for returns than the cycle itself.
“The pace of (AI) adoption may be uneven as it may be constrained by the total amount of tokens at its disposal,” she added.
Tokens are the basic unit of processing purchased by users of AI models that enable them to perform tasks. With supplies in short supply, tech companies are tightening limits on usage.
JPMorgan Private Bank says that while tech has previously been a key theme in investors’ portfolios, the sector is increasingly becoming “the answer to everything and everyone” as a driver of revenue growth for both cyclical and defensive trading.
“When investors are excited about AI, they are buying the technology,” global investment strategist Kriti Gupta wrote in a May 1 note.
“When they were worried about inflation, they bought technology. When they were looking for outperformance, they bought technology. When they thought about sustainability, they bought technology. When they wanted to invest in growth, they bought technology. When they wanted to lean into the capital investment cycle, they bought technology. When they were worried about the world and needed a company with a cash cushion, they bought technology.”
