Are Tech Stocks Overvalued?

The ongoing migration to cloud computing is having ramifications for dozens of stocks across Morningstar equity analysts' coverage

Brian Colello, CPA 18 July, 2017 | 2:54PM
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Overall, Morningstar equity analysts view the technology sector as notably overvalued today at a market-cap-weighted price/fair value of 1.13 as of the end of May, versus 1.06 at the end of February and 0.98 six months ago. Fair value is considered 1, and anything over that is overvalued. The Nasdaq index has risen about 6% from the end of February to the end of May.

Semiconductor business conditions have been downright stellar in recent months, perhaps to the point of warnings that a cyclical peak is emerging. Former Best Ideas within the enterprise software and IT Services sectors have appreciated in recent months, although we still see a handful of undervalued names in these spaces.

Tech bellwethers Apple (AAPL), Alphabet (GOOGL), Facebook (FB), Oracle (ORCL), and Intel (INTC) all appear modestly overvalued to us. In general, we still believe that valuations across tech are painting overly rosy scenarios in new and emerging technologies around artificial intelligence appear significantly overvalued.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Adobe Inc621.63 USD-0.01Rating
Alphabet Inc A2,694.53 USD-0.77Rating Inc3,327.59 USD-7.56Rating
Apple Inc145.86 USD0.15Rating
Facebook Inc A356.30 USD-0.56Rating
Intel Corp53.72 USD0.04Rating
Microsoft Corp284.91 USD-0.55Rating
Oracle Corp87.14 USD-0.56Rating Inc241.93 USD-0.86Rating

About Author

Brian Colello, CPA  is a senior stock analyst with Morningstar.

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