By Christine Idzelis
The S&amp;P 500's tech sector has seen the smallest increase of any group in its price-to-earnings ratio relative to its 10-year average, DataTrek found
The U.S. stock market's tech sector was attempting on Monday to extend its rebound after a tumultuous week.
The U.S. stock market is historically expensive - but investors rushing to blame a bubble in artificial intelligence may be overlooking the expansion in sector valuations beyond technology.
DataTrek Research studied the 10-year average of the S&amp;P 500's SPX forward price-to-earnings ratios across the index and found that &#34;the real story behind currently elevated S&amp;P 500 valuations relative to history&#34; lies within nine sectors other than information technology.
&#34;Technology has seen the smallest increase of any group,&#34; while only the utilities sector XX:SP500.55 has seen a multiple contraction, Nicholas Colas, co-founder of DataTrek Research, said in a note emailed Monday. &#34;It is impossible to demonstrate any sort of 'AI bubble' in tech-sector valuations just now,&#34; he added, pointing to the chart below.
DATATREK RESEARCH
The chart shows the S&amp;P 500 now trades at a 14.4% premium to the 10-year average of its forward price-to-earnings ratios.
Colas found that the sectors with the largest jump in forward P/E multiples relative to their 10-year average are energy, industrials and communication services.
The energy sector's XX:SP500.10 price-to-earnings ratio has surged more than 36%, while the industrials sector's XX:SP500.20 has jumped 32% and that of communication services XX:SP500.50 has expanded around 30%, the DataTrek note shows. By contrast, the S&amp;P 500's information-technology sector XX:SP500.45 is trading at a 5.3% premium to its average 10-year forward P/E multiple.
Tech is the S&amp;P 500's largest sector, and swings in such stocks can heavily influence the trajectory of the index.
Over the past decade, tech has been the best-performing sector in the S&amp;P 500 due to its incremental earnings power, according to DataTrek.
Large-cap tech's long-term track record of &#34;high returns on capital has allowed it to hold high (if capped) valuations, with its ability to grow sustainable earnings faster than expected the sole driver of stock outperformance,&#34; Colas wrote. Future equity returns for tech will depend in part on the ability of companies in the sector to demonstrate that their incremental investments in generative AI can produce earnings growth over time, he added.
The U.S. stock market was rising around midday Monday, with the S&amp;P 500 gaining 0.6%, the Dow Jones Industrial Average DJIA trading about flat and the technology-heavy Nasdaq Composite COMP advancing 1.2%, according to FactSet data, at last check.
The S&amp;P 500's tech sector was rallying a sharp 1.8%, at last check, extending its big rebound on Friday following a turbulent week, according to FactSet data. Although tech is down so far this year, rotations under the hood of the S&amp;P 500 - into areas such as energy, industrials, materials XX:SP500.15 and consumer staples XX:SP500.30 - have helped propel the index to a gain this year of 1.9%, based on Monday midday trading.
-Christine Idzelis
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(END) Dow Jones Newswires
02-09-26 1330ET

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The S&P 500's tech sector has seen the smallest increase in its price-to-earnings ratio compared to its 10-year average, according to DataTrek Research. While the overall U.S. stock market appears expensive, concerns about an AI bubble in tech may be misplaced, as other sectors like energy and industrials have experienced larger valuation increases. The tech sector is trading at a 5.3% premium to its average, and its future performance will depend on the ability to generate earnings growth from investments in generative AI. The S&P 500 was up 0.6% midday Monday, with tech rallying 1.8%.

- The S&P 500's technology sector shows the smallest increase in price-to-earnings ratios compared to its 10-year average, while other sectors like energy and industrials experience significant jumps.  
- DataTrek Research indicates that the current high S&P 500 valuations are largely attributed to sectors outside of technology, with the market trading at a 14.4% premium to its historical average.  
- The tech sector remains influential due to its previous strong performance, but future returns depend on the sector's ability to translate AI investments into sustainable earnings growth.

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The stock market looks expensive - but this chart shows why AI bubble fears in tech may be overblown