(Bloomberg) — Worries have been mounting for weeks that the S&P 500’s (^GSPC) push to record after record risks becoming a bubble, with the index’s swollen valuation cited most often as cause for concern.
Critics point to the tech sector’s outsize influence on this year’s gain, with just five stocks, all megacap tech firms, driving half of the 12% advance. But a closer look shows tech giants have largely justified their elevated valuations with profit growth that outstrips share-price appreciation.
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It’s the rest of the market that is starting to look a bit overpriced, according to Seaport Research Partners.
An index of S&P 500 companies that excludes the technology sector has risen a solid 13% over the last year, but has seen profits grow by just 6.4%, according to data compiled by Bloomberg Intelligence. The S&P 500 Information Technology index has surged 27%, a rate that looks more restrained when put up against the sector’s earnings growth of 26.9%.
The worries are shifting after a stellar earnings season for Big Tech masked worrying trends in other areas of the market. The materials sector, largely comprised of chemicals manufacturers and miners, has climbed 9% this year while earnings have dropped 13%. One of the clearest examples in the sector is Dow Inc., now the most expensive stock in the entire S&P 500, trading at an astounding 914-times earnings.
“Where is the speculation? The speculation is not in the tech stuff, it’s in the non-tech stuff,” Jonathan Golub, managing director and chief equity strategist at Seaport Research Partners, said by phone.
The S&P 500 trades at more than 27 times forward earnings, a level reached only in other times of extreme bullishness. Tech shares also sport heady valuations, with some such as Oracle Corp. and Broadcom Corp. trading at 67 times profits and 86 times profits — worrisome, to be sure.
But the Magnificent 7 tech giants that includes the likes of Nvidia Corp. (NVDA), Microsoft Corp. (MSFT), Meta Platforms Inc. (META) and Alphabet Inc. (GOOG, GOOGL) has seen its P/E ratio fall by 7.9% in 2025 even as its shares have surged by 18%. And while the group’s P/E, at 43, is elevated relative to the market, its profit forecasts for growth of 20% in the coming 12 months may partly justify the price.
Seaport data show that a broader look at tech and tech-heavy stocks shows a similar picture. It groups all the tech companies in the S&P 500 plus Alphabet, Meta and Amazon.com Inc. (AMZN), which are in the communications services sector. Their shares have climbed roughly 15% this year, essentially matching the 15% growth in earnings per share.
