The technology sector of the US stock market is sending out bubble warning signals, with valuations and market concentration reaching their highest levels since the burst of the internet bubble.
According to Bloomberg data, the valuation of the US TMT sector has reached a new high since 2009, with the forward price-to-earnings ratio climbing to 26.7 times, surpassing the previous peak level of 26.3 times. This valuation is 8.7 standard deviations higher than the average of 16.9 times from 2015 to 2019. In contrast, the price-to-earnings ratio of the equal-weighted S&amp;P 500 index is only 17.9 times, still below the pre-crisis peak.
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The internal correlation within the sector is also rising, reflecting the accumulation of systemic risk. The 26-week rolling pair correlation of the TMT sector has reached 0.49, rising above the long-term average since 2010, significantly up from the low of 0.18 in 2024. Historically, when the market faces pressure, stocks in the TMT sector tend to exhibit higher correlation, and with the rise in correlation, the market often experiences price adjustments (within about 6 months).
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The key supporting high valuations lies in earnings growth expectations. The average annual earnings growth rate of the TMT sector is 8.8%, which is 1.5 times the S&amp;P 500 index's average of 5.8%. Analysts expect the sector to grow by an average of 11.8% in the second half of 2025, which is 1.8 times the overall market growth rate.
However, this growth advantage is narrowing. Analysts predict that the TMT sector's earnings will grow by 15.5% in 2026, while the overall market will grow by 12.3%, significantly narrowing the gap compared to before. The shrinking growth advantage may lead to a compression of valuation premiums.
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<h2>Market Concentration Risk Rises</h2>
With the rise in valuations, the market concentration of the US TMT sector has also reached extreme levels.
The market capitalization share of the TMT sector in the S&amp;P 500 index has climbed to 44.2%, surpassing the post-pandemic high of 42.8% in June 2024, and approaching the historical peak of 44.7% during the internet bubble in February 2000.
Market analysis points out that if the TMT sector fails to maintain its earnings growth momentum beyond the overall market, its valuation premium may face compression risks, which could impact the overall market.
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<h2>Valuation Divergence of Mega Stocks Intensifies</h2>
Excluding giant stocks such as Apple, Microsoft, NVIDIA, Alphabet, and Meta, the valuation premium of the TMT sector has become even more extreme. The price-to-earnings ratio of this sub-sector has risen to a historical high of 24.4 times, which is 11.7 standard deviations higher than the average from 2015 to 2019.
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This valuation level even exceeds the previous peaks of 21 times at the end of 2020 and 22 times in 2024. The &#34;seven sisters&#34; of the U.S. stock market currently account for 33.2% of the market capitalization of the S&amp;P 500 index, but only contribute 25% of the expected quarterly earnings for 2026, indicating a significant imbalance between market capitalization and earnings contribution.
The earnings growth expectations for high-valuation stocks are also extreme. The stocks in the highest valuation quintile of this sector are expected to see a year-on-year earnings growth of 18.8%, while those in the lowest price-to-earnings quintile are expected to grow by only 4%. This divergence indicates that the market is pinning hopes on strong earnings growth to justify the extreme valuations.
Risk Warning and Disclaimer
The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk

NVDA

The US stock technology sector has issued a bubble warning, with both valuations and market concentration reaching new highs. The TMT sector's valuation has reached its highest level since 2009, with a forward price-to-earnings ratio of 26.7 times, significantly higher than the historical average. The rise in market correlation reflects the accumulation of systemic risk. Despite strong earnings growth expectations, the growth advantage is narrowing, which may lead to a compression of valuation premiums. The TMT sector accounts for 44.2% of the market capitalization, approaching the historical peak during the internet bubble period. If earnings growth cannot be maintained, the overall market may be impacted

- The U.S. tech sector is signaling bubble warnings, with valuations and market concentration reaching their highest levels since the internet bubble burst.  
- The TMT sector's forward P/E ratio has climbed to 26.7, significantly above historical averages, while market concentration risks are rising, with TMT's market cap in the S&P 500 reaching 44.2%.  
- Analysts predict a narrowing growth advantage for the TMT sector, which could compress valuation premiums and impact the overall market if sustained growth is not maintained.

Valuation and concentration both hit new highs, and the bubble risk in the US tech sector is accumulating!