In the past three months, the world’s top technology giants have flexed their strengths and created a performance that even veteran investors are hailing as historic. Nvidia has topped $4 trillion, Meta is taking victory laps, Microsoft and Alphabet with a tide of AI-inspired optimism has propelled their stock prices higher and everyone’s behaving as if AI has cured world hunger.
AI Pushes Tech to New Peaks
High-profile technology stocks like Nvidia, Meta, Alphabet, and Microsoft have collectively risen an average of 35% in the past three months, according to a recent analysis. Nvidia is at the forefront with a 52% rise, closely followed by a 41% rise in Meta. These spikes are represented not only by strong investor demand for tech stocks but also by unparalleled momentum in artificial intelligence innovation.
The thrill is not limited to the Magnificent Seven. Other stocks, such as Broadcom and Uber, have also risen, attracting 57% and 25% in the same period. At the center of all this AI thriving is Nvidia, whose AI processors continue to sweep the world and whose market valuation has shot past $4.2 trillion.
Sky-High Valuations
While the gains in the stock are impressive, so are the valuations. The average forward price-to-earnings ratio among Nvidia, Meta, Alphabet, and Microsoft is 30x. This is higher than the S&P 500 average of 22x. Nvidia, Meta, and Microsoft are all trading above their average of three year forward P/E ratios, which indicates elevated investor expectations that could be hard to maintain in the absence of robust earnings growth.
Ulrike Hoffmann-Burchardi, head of Equities globally for UBS Financial Services said,
“We note that the recent rally in large-cap tech and AI stocks has been fueled mainly by price-to-earnings (P/E) multiple expansion. While we remain structurally bullish on AI, we would prefer to see further gains underpinned by upward earnings-per-share (EPS) revisions rather than valuation expansion alone.”
These words serve as a reminder that expansion in valuation without earnings growth is a toxic combination. A technology stock that increases on the basis of hopes for the future has to ultimately fulfill real performance, or risk it to be destroyed by its own expectations.
Earnings Season
With the Q2 earnings season looming, these tech behemoths will have the spotlight shining on them. Investors and analysts will demand more than the hype, which is real growth in earnings per share, more transparent monetization roadmaps for AI, and sustained momentum for cloud, software, and advertising businesses. With adding the geopolitical tensions between China and the U.S, increasing regulations, and the arguments over tech regulation, it gets even more complicated.
Despite that, diversification is essential. Hoffmann-Burchardi advises balancing out, with investors diversifying exposure in semiconductors, software, and internet platforms, instead of fully betting on one segment.
Tech Demands More Than Hype
The last several months have reaffirmed the power and energy of the big techs, particularly the leaders in the AI sweep. Markets now no longer reward narrative alone, rather they demand earnings, implementation, and transparency.
For investors, diversification, discipline, and focus on fundamentals will be more important than ever before. The tech titans have raised the bar at an incredible pace. Now they’ll have to keep delivering it up, not just with hype, but with results.
Big Tech is having an AI-driven renaissance, but the current rally among names such as Nvidia, Meta, Microsoft, and Alphabet has been powered more by expansion of valuation than growth in earnings. Nvidia’s 52% increase in three-months is jaw-dropping, but combined with a forward P/E that’s significantly above its long-term average might be a concern.
The same can be said for Meta and Microsoft, both of which are trading on unlikely multiples. The market is assuming almost flawless execution and a steady AI supremacy, but what awaits is regulations, competition, and geopolitical risk. When high spirits are so high, even a slight earnings miss or dull direction can spark an instant tweak.
The AI narrative is real, and its transformative potential is absolute. Still, markets ultimately want to see profits. Earnings season should serve as a reality check and through this, only companies that truly separate themselves will shine brighter at the end.
In earnings season, those able to show cash flow growth, efficiency of operations, and product differentiation will have a reward. Investors better shake off this blind optimism for strategic scrutiny across sub-sectors, keeping exposure diversified while grounded in fundamentals. As technology is not magic, rather it’s business, and business must tend to deliver.
