Many of the next tier of tech companies are far more expensive than the Magnificent Seven

The next tier of large technology companies is priced more aggressively than the Magnificent Seven, leaving investors exposed to unrealistic growth expectations.

• The analysis covers MSCI World Information Technology constituents above US$75 billion, three large emerging-market technology companies, Alphabet, Amazon, Meta and ARM, using blended trailing and forward EPS based on Bloomberg analyst forecasts.
• All companies above US$1 trillion in the selected sample trade below 34 times earnings, whereas the 47 companies between US$75 billion and US$1 trillion have a median P/E of 47.5; roughly half exceed that level.
• Historically, expensive and loss-making US stocks lagged the MSCI USA universe; the P/E threshold for the most expensive quintile rose from 26.7 in May 2006 and 14.8 during February 2009 to above 39.6 today.
• Memory-chip companies have lower multiples because investors expect their current pricing boom to fade, while many other AI and data-centre beneficiaries are valued as if growth will persist; 77% of sub-US$1 trillion companies in the sample trade at higher P/Es than Nvidia.
• AMD illustrates the disconnect: its data-centre business grew 57% year-on-year versus 92% for Nvidia and 98% for Broadcom, yet AMD’s share price rose more than 150% in the first 11 weeks of the quarter and reached over 160 times trailing earnings.
• The sub-US$1 trillion companies have median annualised volatility above 50%, which the author likens to a highly uncertain “hero or zero” investment outcome rather than a reliably efficient market.

Takeaway: Investors should be wary of the next tier of technology stocks and distinguish genuine exceptional growth from valuation inflation; high P/E multiples can be justified in isolated cases, but it is implausible that so many companies simultaneously deserve them.