The technology sector is facing its steepest valuation test since the dotcom era as the NASDAQ Composite enters formal correction territory amid an intensifying U.S. military conflict with Iran. The index is on track for another sizeable retreat today, but analysts at Capital Economics suggest that the current rout is likely a temporary repricing rather than the start of a systemic collapse.
Despite the S&P 500 IT sector’s forward price-to-earnings ratio nearly converging with the rest of the market, the structural link between AI-driven earnings and long-term growth remains largely intact.
Valuation convergence and historical echoes
The recent pullback has sparked uncomfortable comparisons to the final months of the 2000 tech bubble, where a sharp drop in valuations preceded a total collapse in earnings expectations. But the current landscape differs fundamentally due to the robust nature of Big Tech’s balance sheets and the tangible productivity gains promised by the digital economy.
Capital Economics analysts noted that the convergence of tech valuations with broader indices represents a removal of the initial exuberance premium, rather than a signal of an imminent earnings recession.
The report notes that while the war in the Middle East has triggered a rotation into defensive safe-haven assets, the tech sector’s ability to generate cash flow in a high-inflation environment provides a unique layer of insulation.
source https://www.investing.com/news/stock-market-news/us-tech-pullback-mirrors-late-stages-of-dotcom-era-strategists-say-4586292
