Tech trades under 30x P/E

The story here is not that tech suddenly became cheap in some old-school bargain-bin sense. It didn’t. The story is that earnings caught up. After another round of strong Q1 reports, a bunch of big tech and AI-linked names now trade on lower forward multiples than they did a few months ago, even though the business backdrop still looks strong. That is why investors are talking about “value” inside tech again — not because prices crashed, but because profits rose fast enough to shrink the P/E. ### What changed this week? Q1 earnings kept landing better than feared. FactSet’s May 8 update showed 84% of S&P 500 companies beating EPS estimates and 80% beating on revenue, with blended earnings growth running at 27.7% — the strongest pace since late 2021 if it holds. In other words, the “E” in P/E moved up a lot. ### Why does that matter for tech? (cnbc.com) Because tech had been carrying the stigma of “overpriced AI trade” for more than a year. CNBC’s May 8 write-up points to the S&P 500 Information Technology sector trading above 30x forward earnings in October 2025. Now that same setup looks very different. One current sector screen puts information technology at about 23.6x forward earnings — still premium-priced, but no longer living in nosebleed territory. (factset.com) ### Is this just multiple compression? Not really. That is the important nuance. A stock can get cheaper because the share price falls, or because earnings estimates rise faster than the stock. This time, a lot of the move came from the second path. Basically, companies “grew into” valuations that looked stretched six months ago. That is a healthier kind of cheapening because it does not depend on the market giving up on the theme. (cnbc.com) ### Which earnings actually moved the needle? AMD is a clean example. It reported Q1 revenue of $10.3 billion, up 38% year over year, with Data Center revenue up 57% to $5.8 billion. Management said AI infrastructure demand is accelerating, and that customer forecasts for MI450 and Helios are running above initial expectations. That is exactly the kind of report that can lower a forward multiple without breaking the growth story. (cnbc.com) ### What about Alphabet? Alphabet made the same case from a different angle. Q1 revenue reached $109.9 billion, up 22%, while Google Cloud grew 63% and topped $20 billion for the first time. The backlog climbed past $460 billion. Turns out the market’s old fear — that AI would weaken Search economics — has not shown up in the numbers yet. Instead, AI is helping drive more usage across Search, Cloud, and subscriptions. (ir.amd.com) ### Are smaller names part of this too? Yes — and that is why people are screening beyond the mega-caps. DigitalOcean posted record Q1 results with revenue up 22% to about $258 million and raised its 2026 outlook. Sterling Infrastructure is not a software name, but it has been pulled into the AI buildout trade through data-center and infrastructure exposure; it reported Q1 revenue up 92% and raised full-year guidance. (blog.google) ### So is tech actually “cheap” now? Cheap versus its own recent peak — yes. Cheap versus the rest of the market — not exactly. The S&P 500 as a whole trades around 21x forward earnings, so tech still carries a premium. But Morningstar’s bigger point is that the AI basket is trading at its largest discount to fair value since 2019. That is a very different claim from “tech is dirt cheap.” It means the fundamentals may now justify the premium better than they did before. (investors.digitalocean.com) ### What is the catch? Capex. The whole thesis still leans on hyperscalers and enterprises continuing to spend hard on AI infrastructure. If that spending slows, the “E” side of the equation stops rescuing the multiple. So the setup is better than it was — but it is not a free lunch. The bottom line is simple. (factset.com) Tech trading under 30x is not the headline by itself. The real story is that strong earnings from companies like AMD and Alphabet made that lower multiple believable. (cnbc.com)